Since 2016, over 2,000 new sellers join Amazon’s global marketplace every day. 700 of these are in the U.S. marketplace alone. Is the constant influx or new sellers a sign of success? What changes have influenced long time sellers to quit amazon?
The answers to these questions are more than just looking at the statistics. Read on to find out why more and more sellers are moving away from Amazon FBA.
Is Amazon FBA Dead in 2022?
You will find many review articles and videos claiming that Amazon FBA is not dead or dying. Most of these reviews focus on statistics of seller population growth, inability of the seller to compete, or simply the total value of e-commerce sales.
While the increase of new sellers on Amazon FBA has remained almost constant since 2016, yet there have been many sellers who are leaving or going inactive.
Amazon has 9.7 million sellers worldwide, yet only 1.9 million are active. In 2021 alone, it was found that 72% of new sellers never listed any product. Many of these new sellers created accounts but never participate.
This means that any claim that Amazon is still a good business model to start in 2022 based on evidence of continuous seller growth without taking into account seller activity does not reflect the reality of seller success.
Let’s take a look at some reviews by marketers/bloggers, who participate in Amazon FBA and offer courses, try to explain why Amazon FBA is not dead.
In his video review, Camron James defended that Amazon FBA is not in a decline basically because e-commerce sales have been going up while the percentage of e-commerce sales to total retail sales have been low. In 2021, the total value of e-commerce sales in the U.S. amounted to $870 billion. Yet this was only 10% of total retail sales in the U.S. Camron claims that these statistics mean there are huge opportunities awaiting new sellers.
The problem with this take is that the total e-commerce report he presented is not specific to Amazon FBA but rather to the entire e-commerce industry. This does not take into account other rising platforms (such as Shopify which is now 50% as large as Amazon).
In another video review, this time by Adam Heist. He explains how Amazon FBA is dead in a sense that it’s not the same as it was in the first decade of the 2000s to around 2015. He explains how Amazon FBA after 2015 is very well alive, but selling in Amazon has become more challenging and complicated.
Adam concludes that success as an Amazon FBA seller is still possible, although the old paths to success have now been closed while tougher roads with new opportunities are now open. According to him, success in Amazon FBA business in 2022 means putting way more time and resources into it compared to years before.
How Difficult Is Achieving Success With Amazon FBA In 2022?
In 2015, for example, you can just order bulk products from Alibaba, have them shipped from China to Amazon warehouses and sell them on the Amazon marketplace. The entry of Chinese manufacturers on the market complicated this method as Amazon FBA Wholesalers now had to compete prices with the supplier of the same products they resell. In 2021, 75% of amazon sellers were based in China.
The influx of Chinese merchants also added a problem of “knock off” products flooding the marketplace, mixing with authentic items, creating a quality problem. While Amazon tries to solve this problem, they still rely on Chinese suppliers for affordable and diverse products. This issue has led many big western brands to pull out from Amazon.
The influx of Chinese sellers further complicated the situation when several big sellers were caught, and later banned from using “unacceptable business practices”. These sellers have been manipulating reviews via paying real customers to leave positive reviews, sending fake orders with excellent reviews via “zombie accounts”. These zombie accounts are made to look real by manipulating IP addresses, using virtual credit card numbers, and even using overseas addresses.
For private market sellers, the influx of new products onto the platform has saturated the catalogs. Amazon only shows a limited number of items per page, and with the flow of hundreds of millions of products and even more added daily, most products are never sold. Amazon is also directly competitive. If you are selling your own unique product and Amazon comes up with a similar product, you will be directly competing against Amazon which will put you at an advantage. Unique products put up on Amazon will also probably be copied by other sellers in a short amount of time.
Dubious practices of some sellers such as review manipulation create a negative effect on new and old merchants trying to sell their own brands.
What is Amazon doing about these problems?
Amazon has responded by adding stricter requirements for brand registries, safety testing and insurance liability for new merchants. While this is good for Amazon, it adds more barriers for new sellers.
Downsides Of Amazon FBA In 2022
Travis Marziani, who made his fortune with Amazon FBA, explained why he quit and the difficulties of joining in 2022. Marziani made $794,561.47 on Amazon just by selling his own private labelled product. Stating market saturation, the effects of the influx of China-based sellers, and the increasing price of amazon fees, he explains how success is still possible although quite costly in time and money.
While many claim that the boom in e-commerce is a sign of enormous opportunities for new sellers, yet fail to consider the rising cost of advertising, outsource, and fulfillment.
E-commerce is booming, yet sourcing and advertising products are getting more expensive. For example, the price per shipping container went from $3.5 to mid $20k and also takes 3 times longer to ship and receive. Prices of ads went from 8-10% to 15-20% further hurting the profit margin.
Amazon FBA Fees In 2022
- Prep Service and Label Service fee changes since January 18. Labeling increased from $0.30 to $0.55 per item. Prep fee increased from $0.20 to $0.60 for standard size items and from $0.40 to $1.20 for oversize items.
- Referral fee of often 15% or less of the item price depending on the item type.
- A $.099 per item fee, unless subscribed to the professional selling plan at the cost of $39.99 per month.
- $1.80 per item closing fee from sales of products in the categories of books, DVDs, music, software & computer/video games, video game consoles, and video game accessories.
- Fuel price increases added a 5% fuel and inflation surcharge to fulfillment costs since April 28.
- Monthly per cubic foot storage fee of $0.75 for standard items and $0.48 for oversized items on the months of January to September, and $2.40 for standard items and $1.20 for oversized items on the months of October to December.
- When items are in storage for longer than 365 days, Amazon also charges long term storage fees. The charge is $6.90 per cubic foot or $0.15 per unit, whichever is greater.
Other miscellaneous fees that may apply such as refund administration fees, high-volume listing fees, and rental book service fees.
Why Are People Leaving Amazon FBA?
So is Amazon FBA dead? No, to say the least. But why do sellers continue to leave? Here’s a summary of why sellers are leaving the Amazon FBA marketplace.
- The market is saturated with hundreds of millions of products. Competition in popular niches is extremely high.
- The influx for Chinese manufacturers selling their products led to wholesalers who sell these same products unable to compete with prices.
- The burst of review manipulation by some sellers puts private label sellers at a disadvantage at having their products reach possible customers.
- Amazon being directly competitive puts sellers in the same niche at a tremendous disadvantage.
- The increasing price of sourcing, advertising, and additional fees that lead to lower profit margin.
- Lastly, the rise of other digital marketplace that offers renewed opportunities.
Is It Still Possible To Achieve Success With Amazon FBA?
The answer is, yes. It is possible to achieve success with Amazon FBA in 2022, whether you are a new or old Amazon seller. It is just more difficult than how it used to be. Those looking for a get rich quick scheme will find nothing but disappointment. Having the right strategies could definitely bring you much success, though through a tougher grind.
If you are an old seller, by investing more time and money into increasing the advertising of your product, you might just be able to take full advantage of Amazon’s already vast customer base. If you are a new seller trying to get into Amazon FBA though, you may have a harder time as compared to those who entered years ago. The high competition requires you to put more time into your product, and higher starting costs may also be a high risk.
If you are new to Amazon FBA, be aware of these challenges and know that it takes time and effort to achieve success.
58% of sellers spent less than $5k to get started on amazon, while only 28% spent less than $1k.
Note that these are just the initial investment and do not necessarily equate to success. The more you invest, the higher the risk, yet the higher the chance of climbing that ladder to success. Profit turnover also takes time.
20% of sellers turned a profit within 3 months. 17% of sellers took 3-6 months to turn a profit, and 23% of sellers turned a profit within 6 months to a year.
Of course, there are other online business models out there. With the increasing difficulty with the Amazon FBA model, consider trying your hand with other business models with more opportunities and fewer risks. Let me give you a suggestion: my number one business model, local lead generation. Compared to the saturated Amazon FBA, local lead generation doesn’t require you to invest much time or money to turn a profit. By building connections with local businesses, giving them leads by creating a website, and ranking it on google, you can sit back and watch your commission flow in.
What’s beautiful about local lead generation is that once you set it up, you don’t have to put much time and effort into it to turn in a steady profit. A true passive income model. You don’t have to worry about creating products, high competition on a national or global scale, or even the high price of ads. If that sounds good to you and you want to give it a look, click the link to know more about local lead generation.