Etopia

Year of Scrutiny with Amazon

Etopia’s Managing Director, Asha Bhalsod

Etopia’s Managing Director Asha Bhalsod takes a look at how to manage your Amazon marketplaces during a tough economic climate.

As we head into the new year, we are seeing Amazon take a renewed focus on profitability and productivity. We are in the midst of one of the toughest business climates yet, and brands will be forced to change how they manage their Amazon marketplaces. Amazon will put everything you do under the microscope, and they will scrutinise margins extensively. This will be a year of scrutiny with Amazon!

Net PPM and Profitability

Until recent y[ears, Amazon rarely discussed their margins and profitability with Vendors. Selection was key. Participating in deal events was key. And having “good” terms was the foot in the door for Amazon to introduce the topic of profitability. This driver changed in recent years, and now there is a clear shift towards profitability. Vendors are scrutinised more; almost asked to meet a guaranteed net margin. And at the end of the year, when those margins are unmet, trading term negotiations get very tough. Amazon’s Net PPM (Pure product margin) needs to be tracked monthly and should almost be fixed; it simply can’t drop. The risk of Amazon not making enough margin from your brand and its products could lead to detrimental consequences for your business. The ongoing argument by many brands is that Amazon has its own pricing policy – so why should brands be penalised for this?

Amazon In-House Resources vs Agency

Q4 was challenging, and as I predicted in my December Nursery Today article, more layoffs are on the horizon at Amazon. Less Amazon staff means more pressure on Vendors to equip themselves to wholly manage their Amazon business. Therefore, the spotlight will shift to finding talent with the proper skill set, perseverance, and grit to go the distance when a scaled-down version of Amazon support services can no longer assist with day-to-day challenges.

Your Amazon team needs to be well-versed in account management, analytics, marketing, content creation, sales support, logistics, and operations. If you don’t have a team in place to service Amazon currently, recruitment will be the next option. Amazon skills are in high demand. Due to the rapid growth of the channel, the market is under-skilled, and salaries have increased an incredible 30%-50% from pre-Covid to today.

Alternatively, you can hire an agency to complement and help support your team with specific Amazon marketplace knowledge and expertise. An agency shouldn’t necessarily be used to replace your existing e-Commerce team. They can help to upskill and work in parallel with your in-house team until day-to-day operations are handed over and the agency only steps in to ensure that your Amazon strategy delivers according to plan.

Pay to Play with Amazon

In 2023 you’ll have to zoom out and scrutinise all the costs to serve Amazon holistically. This includes advertising spend. Brands will have to pay (more) to play on Amazon next year! The cost per click will increase, and advertising spend will come in at a higher percentage of sales. Deeper pockets and strategic investment in advertising will be necessary. On the flip side, when investment spikes, organic sales may spike, so there may be a positive domino effect.

Data is, without a doubt, the most crucial element to consider in advertising. And just when you think you have enough, gather more! All decisions you make around campaign execution should be backed up

by data and strategy. Worst thing you can do is to get emotionally attached to categories, ASINs or search terms. If something is not converting or part of your SEO strategy, stop spending on that item! And just because a search term has high search volumes doesn’t mean you should target it. More often than not, the competition is saturated for that term.

Global and EU Expansion

Contrary to common belief, expanding into global Amazon territories isn’t as straightforward as it might look. However, with tax liabilities, localised translated content, and pricing strategies – there’s a lot to consider! It’s not as simple as copy and paste. Is there demand for your products? How fierce is the competition in your product category? How well does your brand translate into the local language? It’s also worth considering whether an agency to manage your EU launch will be better suited vs your internal team. Your internal team will be focused on running the day-to-day Amazon business and moving them into other projects could result in your current Amazon business losing focus.

Win-Win Profitability

There’s growing pressure on Amazon to ensure their vendors are profitable for them. Whether that’s through escalated terms or requests to be involved in retail programmes, brands have to be very mindful that (increasing) Amazon’s profit will be the focal point for the next few years! And what are the implications of not grasping this renewed focus? I expect unprofitable SKUs and ranges will be taken off sale and Vendors showing a reduced willingness to interact with your brand. I wouldn’t be surprised if they stopped ordering from your business altogether if the margins are that challenging. It’s simple - Amazon will grow your account if your brand is profitable for them, so creating a financially viable commercial proposition for both parties will lead to a win-win situation.

Market conditions are tough at the moment, and the pressure on brands will continue to mount. Amazon will intensify its focus on growth and profit, and brands will be forced to tweak their business playbook. When kicking off 2023 planning, ensure that your internal teams understand the fundamental reasons behind your 2022 profit performance. This will help you build a comprehensive strategy aligned with your overarching e-Commerce and business objectives. For further support on your Amazon business, please get in touch!

To book a consultation or learn more about Etopia, email: asha@etopiaconsultancy.com

supplier snapshot

Nursery Today spoke to Joie’s Head of Product Management Damon Marriot to find out his thoughts on the year ahead.

What are your hopes for 2023 as a business?

We have a great relationship with all our retail partners, and we are looking forward to continuing to support each other through 2023 – there are some exciting times ahead as we continue to expand our product range. We are also hoping that we are moving into a more stable period in terms of the various shipping and transportation fluctuations that we have seen over the last few years that have had an impact on cost and product availability.

Do you think consumers will be altering their buying habits during the continued cost of living crisis?

It is certainly no surprise that current economic situation has had a massive impact on families across the UK and it is likely that we will see this reflected in the way consumers spend. As the cost-of-living crisis is hitting many families hard, here at Joie we are committed to giving our consumers a wide range of options at a number of different price points, making sure that we are catering to all budgets.

What do you feel will be your largest challenge this year?

We are transitioning our new R129 products into the core section of our CRS business, whist simultaneously phasing out our older R44 products – this will pose a challenge for many brands as different retail partners will have different strategies in terms of timing.

What type of support are you hoping to provide your retail partners throughout 2023?

We will continue to directly support our retail partners through our dedicated team of sales trainers who will help spread the understanding of the benefits of R129 products. We will also continue with our multi-channel approach regarding access to assets that will assist both retail partners and consumers with understanding the differences between R129, R44 and i-Size.

Do you feel there will be a particular nursery product category that will be trending this year, or perhaps a colourway or products with eco credentials, etc.?

Yes, the eco/sustainable product line will see more activity for sure, combined with continued new launch R129 products entering the market.

More and more consumers are thinking about sustainability when making their purchases, so we are sure to see an increase in demand for products in this area of the market.

Do you have any exciting plans or new product launches on the horizon this year that you would like to share with Nursery Today readers?

Absolutely – we are really excited about some of our amazing launches that we have coming in 2023, particularly our Cycle Collection which uses recycled plastic bottles to make the soft materials on a selection of our most popular products. Plus the launch of the i-spin XL which will complement our award winning spin family perfectly.