The holiday season is big business for e-commerce. Year-over-year metrics show huge gains for online sellers, especially during the 2020 pandemic, with sales increasing 45% from 2019.
At the heart of that push was Amazon, whose global sales grew by more than 50%, with more than eight million items delivered.
But this year will be very different on each platform. Brands should focus on profitability rather than sales volume, because while Amazon will once again have record sales, the game has changed more than any previous year.
Let’s take a look at why …
Amazon struggles to pay
The rapid rise of e-commerce is having ramifications, even for large fulfillment companies like Amazon.
Like many U.S. companies, Amazon is struggling to hire – and despite investing $ 35 billion in fulfillment capabilities, Amazon can’t build warehouses fast enough. All major markets remain heavily dependent on a network of delivery partners, many of whom face logistical and financial challenges in achieving the noble goal of shorter delivery times.
So it’s no surprise that Amazon has limited warehouse space, reducing the number of popular items that third-party sellers who use Fulfillment by Amazon (FBA) can ship to its fulfillment centers.
For example, one merchant reported that he could only send 230 units of a novelty, fast-selling board game to an Amazon warehouse, despite having sent thousands in the past. Others have noted the increasing amount of time Amazon is given to register newly shipped goods.
This is a huge headache for sellers who might be missing out on potential sales volume during the busiest time of the year. But out of stock has other consequences. Amazon sees low inventory as a sign of unreliability and penalizes the seller with lower rankings in search listings – a potential kiss of death for many brands, even though the limitation comes from Amazon itself.
Low inventory plus low ranking equates to lower sales, revenue shortfalls, and the potential loss of the merchant’s Amazon bestseller ranking, which is based on units sold.
Costs continue to rise
Another reason that focusing on the number of units sold is particularly problematic this holiday season is that sellers are facing a substantial increase in the cost of their operations.
Over the past year, supply chain issues have resulted in a 500% increase in the price of shipping “Made in China” products to the United States. inventory.
But that’s not all. The cost of marketing these products has also skyrocketed. As established brands spend more of their marketing budgets on Amazon, Google Ads, and social media ads, auction-based pricing for these products has increased exponentially, driving up acquisition costs. customers for brands already in dispute.
How brands and sellers can prepare for a unique holiday season
While online shopping will remain a major channel this holiday season, third-party sellers who have benefited from the e-commerce highs brought on by the pandemic must be realistic about how this holiday season could be slower and less profitable by compared to 2020.
In this environment, is it a good strategy to discount products? Another year, maybe. But 2021 is unique. Third-party sellers face a wave of market forces and post-pandemic disruption working against them. Even if playing the discount game doubles sales, rising costs could easily push margins into negative territory.
Therefore, the profitability of this holiday season outweighs the sales. To prepare, big brands need to reconfigure their typical holiday sales strategy to focus on four key areas:
1. Have an execution backup plan
Brands need to find ways to work around warehouse limitations and Amazon’s execution challenges. One way to do this is to diversify their execution options. For example, having a backup plan like the list of seasonal high demand products under Amazon’s Fulfilled by Merchant (FBM) option will ensure that sellers can continue to ship goods directly to the buyer from their own warehouses. This is also true in other markets.
2. Fight rising advertising costs by finding a winning niche
With advertising costs rising, merchants need to get creative to earn a spot at the top of Amazon’s search listings. They can do this by finding a small corner of Amazon, Walmart, and other markets where they can dominate by aggressively targeting high volume niche search terms.
For example, a seller of non-synthetic baby toys may stand out from the crowd by using terms such as “non-toxic baby toys”, “plastic-free toys” and “eco-friendly baby toys”. As conversions and sales increase, Amazon’s algorithm will increase the product ranking organically and the seller will be in a better position to compete for more common terms like “baby toys”.
While it’s important to stand out, it’s just as important to recognize where your investments are underperforming. Experimenting with various search listings is essential to find a winning niche, but pivoting quickly to change search terms where something is not working is essential to deal with rising ad costs.
3. Be realistic about supply chain issues
In today’s climate, traders can no longer afford to depend on one supplier for 100% of their goods.
To compensate for supply shortages and mitigate rising costs, sellers should consider sourcing from US or Mexican suppliers. It can be time consuming and may not be achievable until the holiday season, but it is wise to develop a supplier diversification strategy, especially since many supply chain issues will continue into the next year.
4. Slow demand to increase profitability
The best strategy for brands that are affected by supply chain issues and increased shipping costs is to slow demand and increase profitability.
Sellers should avoid the discount game and forgo buying expensive ads. Brands also need to be careful not to overstock merchandise that won’t sell easily after the holidays, and to avoid running out of stock of the items buyers want – a sure-fire way to damage the brand’s reputation.
The key to a successful 2021 holiday season for brands is to focus on doubling their profits, rather than sales.
Businesses need to recognize the potential external factors that could affect their brand during the holiday season and control the factors they can affect: staying in stock, dominating niche research categories, and preparing for supply chain issues. and slowing demand. In doing so, brands can not only survive the 2021 holiday season, but come out stronger and more resilient on the other side.