The Growth of Amazon Aggregators, What You Need to Know
Many of the products you buy on Amazon are from small businesses called third-party sellers. These third-party sellers may not have a well-known brand name but they get you to hit the buy button with their low prices and five star reviews. As Amazon has grown, so have these third-party sellers which now make up more than half of Amazon’s sales. The growth of these third-party sellers has not gone unnoticed. It has actually spawned an entirely new type of business called an Amazon aggregator.
Amazon aggregators are companies that scoop up these small businesses in a CPG like model with the hopes of making the sellers they acquire larger, even global businesses. “The emergence of these companies reflects how selling with Amazon offers small businesses powerful opportunities to build their brands and reach millions of customers,” said an Amazon spokesperson. If you are curious about this relatively new industry then here’s what you need to know.
1. There are approximately two million third-party sellers on Amazon that make up 60% of Amazon’s retail sales. As eCommerce has surged in recent years Amazon is not the only beneficiary, many mom-and-pop entrepreneurs who sell merchandise on Amazon have created multi-million-dollar businesses in the process.
2. Third-party sellers in the United States have sold more than 3.8 billion products on Amazon in the 12-month period ending on August 31, 2021. “All of these big brands with all of these advertising dollars don’t dominate Amazon,” says Chris Bell founder and CEO of Amazon aggregator Perch. “It's just a different playing field. The winners are these small guys who don’t have enough capital to expand into Europe.”
3. One of the reasons to buy an Amazon third-party seller is the potential for the business to become a much larger going concern. A prime example of this is Anker Innovations Technology, an “Amazon-native”, which started its business by selling chargers on Amazon and now is a global brand valued at nearly $8 billion. Anker’s products are also sold at retailers like Walmart and Target.
While Amazon third party sellers on average generate $200,000 in annual revenues Amazon aggregators are on the hunt for the next Anker and are looking for brands with good reviews and sales between $1 million and $10 million. Amazon aggregators buy businesses across a range of categories, although some avoid apparel businesses because of the lower margins.
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4. Why would a successful third-party seller want to sell to an aggregator? They might be burnt out and are looking for an easy way to exit the business. Or they don’t have the capital required to scale and don’t want to raise equity funding to do so.
5. There are more than 80 Amazon aggregators and a significant amount of venture capital has flowed into these companies, around $11 billion since April of 2020. The largest Amazon aggregators are Thrasio and Perch. Thrasio was founded only four years ago, owns more than 200 Amazon brands and has raised $3.4 billion. "When we started three years ago, it was very evangelical from our standpoint. We were educating Amazon sellers that you could actually sell your Amazon business," said Ken Kubec, Thrasio's vice president of acquisitions.
Perch was founded in 2019 and has raised $900 million. Some of the companies Perch has acquired sell maternity belts, auto upholstery tools, peppermint-based athlete’s foot cures and virtual-reality headsets. Some of the businesses Thrasio has acquired sell pet deodorizers, mops, massagers, bike accessories and toys.
6. Amazon aggregators believe they can increase the sales and margins of the businesses they acquire by improving SEO, marketing and logistics. The strategy can be likened to a large CPG company that manages a portfolio of brands. The institutional know-how gained from managing multiple brands like P&G and Unilever do can help a single brand to perform better.
Aggregators also believe they can help these businesses to expand internationally, get their merchandise on other marketplaces like Walmart.com and sell their merchandise in brick and mortar stores where the majority of retail sales occur. “The brands that we’re acquiring, they don’t have experts in literally every kind of field that we are able to: from [search engine optimization] to copywriting and creative,” said Casey Gauss vice president at Thrasio. “We’re able to put all of these brands through this checklist and make sure that we’re optimizing them far better than the average seller can.”
7. The market for Amazon sellers is so hot that sellers often receive multiple offers, bidding prices up. One company, Acquco, is even giving away a Tesla for a referral that turns into a successful acquisition of an Amazon business. Mark Daoust founder and CEO of QuietLight, a brokerage says that an Amazon third-party seller business that could be bought for $3 million in 2020 cost as much $5 million in 2021. “There are still not enough businesses for sale to satisfy all of the aggregators,” said Daoust. Aggregators often offer a price that’s three to four times the seller’s annual profit.