Hey Everyone 👋

Welcome to the +336 subscribers who have joined this week. If you’re reading this but haven’t subscribed, join our community of +50k smart, fun & edgy investors 👇

*This is sponsored advertising content.

We’ve all seen “get rich quick” schemes in one form or another.

From the peddling of shit-stocks to more elaborate pyramid schemes, these systems violate trusted ecosystems and hurt the average joe.

A tell-tale sign of this is grifters that ask to “buy my course, so you can do it too!”

We’re starting to see more and more of this across social media platforms - TikTok in particular. These influencers will sell day trading courses and give tips on which shitcoins to buy next.

But there’s also a more innocuous one going around currently that a lot of people are buying into - 3rd party selling on Amazon.

What is 3rd partying selling, and why do it on Amazon vs. Squarespace or Shopify?

Can you really hit the jackpot around Black Friday this year? Or will your product tank because that course you bought was a bunch of smoke and mirrors?

I came across a very interesting podcast from one of my favourite guests, Ali Hamed on business breakdowns. He does an excellent job of walking through this landscape. Coupled with perfect timing around Black Friday, I thought it would be a great time to dig in here.

This week, in <5 minutes, we’ll cover the Amazon 3rd Party Selling Network:

• How Does Amazon’s Marketplace Work? 👉Private Label vs. Third Party (3P)

• What is 3rd Party Selling? 👉 Manufacturing, Distribution, Marketing

• Attributes of Succesful 3rd Party Sellers 👉 How to Win

• Who are the Big Dogs? 👉The Biggest and Baddest in the Space: Thrasio

• Downfalls 👉Why it’s hard to Succeed

• How GRIT’s Playing it 👉 Plumbing of the System

Let’s get started!

1. How Does Amazon’s Marketplace Work? 👉  Private Label vs. Third Party (3P)

Every time you boot up Amazon on a web browser or the app and enter in a search item, you get fed with two types of results. 3rd Party Sellers - AKA anyone except Amazon, and Amazon’s own products.

The famous book written on Amazon is appropriately titled “The Everything Store” because they set out to fill every possible consumer demand all at your fingertips - and delivered… fast.

A shortcut to scale if you are building a platform is to aggregate third parties. If you don’t have the capacity to manufacture products, aggregation as a marketplace fills this need.

But once you have reached a critical mass on aggregation, in order to achieve margin expansion, typically what you look to do is take over more and more of the supply chain through vertical integration.

From an outside view, this is why the Amazon basic’s private label brand was created. But if you get into the weeds of it, Amazon actually makes better margin on their third party products because they have built out so many warehouses and logistics capabilities.

Instead, the Amazon basic’s private label functions more as a stopgap to fill the need of every single product that consumers want. Amazon does this so more people will think of starting their search for a product on the Amazon app rather than on a Google browser. And why does that matter? Amazon can now turn and sell that ad space and steals that marketshare from Google.

Amazon doesn’t disclose the hard dollars, but currently, roughly 2/3rds of all sales are 3P while the remaining 1/3rd is Amazon private label. Since the margins on 3P are a bit better, Amazon is incentivized to keep roughly this balance to blend profitability and product offering on their platform.

BUILDING THE NEXT TECH GIANTS: What if you could invest in the next Robolox before it was Robolox? How do you even find the next one? Luckily, you don’t have to! Victory Square gives investors early-stage access to the next unicorns before they’re unicorns. Invest in the tech giants of tomorrow with Victory Square*!

EXPORTING CLINICAL EXPERTISE. Novamind partners with Bienstar to develop Latin America's first network of integrative mental health clinics treating patients with psychedelic medicine and other innovative treatments. Read more here*.

RENEWABLE ENERGY IS THE 2ND MOST USED ENERGY SOURCE IN THE US. It accounts for 21% of all electricity. Greenbriar Capital has a 400MW solar project in Alberta which has the best solar radiation in Canada plus another in Puerto Rico where prices are 400% higher than the mainland! I smell MARGINS*!

CRYPTO FOR EVERYONE. If BIGG Digital had their way, everybody would have crypto. But since they can’t give it away they decided to create the most easily accessible platform for Canadians to safely buy & sell cryptocurrencies instead. Why Netcoins? Rapid transaction times, fast verification, excellent support, safety focused and government regulated*!

INVEST IN THE CLEAN MEAT REVOLUTION. CULT Food Science gives investors access to the next generation of food: cultivated meat & cultured dairy. Their approach diversifies exposure to an exciting and disruptive industry by investing in the most innovative startups! You can check out their current portfolio here*.

SERVING THE ENTIRE HEALTH ECOSYSTEM. By connecting and empowering patients, doctors, providers and enterprises, CloudMD has leveraged their revolutionary proprietary healthcare tech platform into a growth machine with multiple revenue streams. With an annualized run rate of $155M, and projected profitability this year CloudMD is taking its digital health platform to SCALE and expanding rapidly*!

WORLD’S LARGEST PLANT-BASED ONLINE MARKETPLACE: During the pandemic, online grocery sales grew 54.0% in 2020 to reach $95.82 billion. Vejii is a digital powerhouse that’s built for rapid scale! Their infrastructure of data, tech, marketing, and logistics is giving ethically-aligned buyers access to the world’s largest selection of plant-based and sustainable-living products online*!

*This is sponsored advertising content.

2. What is 3rd Party Selling? 👉 Manufacturing, Distribution, Marketing

Right now, if you want to sell a good online you pretty much have two leading options: Amazon and Shopify.

The Amazon approach is best for goods that do not have as much brand association and are slightly more commoditized. Shopify excels in higher ticket items where the consumer has an affinity towards a brand through either word of mouth or marketing budgets.

Amazon has 3 main types of fulfillment methods:

• Fulfilled by Amazon (FBA): Seller ships inventory to Amazon, and Amazon fulfills orders on the seller’s behalf.

• Fulfilled by Merchant (FBM): Seller ships their own products directly to the customer after receiving orders from Amazon.

• Seller-Fulfilled Prime (SFP): Seller ships their own products directly to the consumer according to Amazon Prime’s strict shipping standard, allowing them to display the Prime badge on listings they fulfill from their own facilities.

For the purpose of this discussion, we will focus on the FBA component within Amazon that handles all the “stuff” for you.

Amazon offers a full suite of services from the product listing, payments, packaging, warehousing, and logistics side of the equation. The main variables that go into just how much Amazon’s take-rate is, are weight and size. If you were to make a broad generalization, the take-rate on the FBA side is roughly 40% of sales.

That means you have to manufactur the product, and get it ready to go to Amazon with the proper labelling and everything ready to go, then they take 40% ontop of that. So you can see how quickly the margin erodes as these costs pile up.

But first, let’s check in with our Outrageous Chartered FinMEME Analyst Dr. Patel!

3. Attributes of Successful 3rd Party Sellers 👉  How to Win

I am by no means an FBA Guru, and I think if anyone can crack this code to success you should go out and do it, but this is an aggregation of recent frameworks that successful small to mid-sized sellers have followed.

Avoid Fashion and Electronics

Fashion by nature is fast, and as we wrote in our previous article that focused on Shein, it’s only getting faster. To stay ahead of trends and keep up with capital-intensive manufacturing is a goliath tasks that many many SKUs have failed to do.

Electronics have an extremely short half-life (the time required for a quantity to reduce to half of its initial value). Constant innovations driven by Moore’s law can render an SKU irrelevant in the span of six months. This also creates the need to absorb alot of waste in inventory which compresses margins if a product’s sales cycle is not managed effectively.

Additionally, if you are building a dongle or gadget that attaches to a product like an iPhone, Apple can change a spec and render your product useless which puts you back to the drawing board.

Customer service and reviews as a moat

By nature of the discovery of the product, reviews are important. When users boot up the web browser, they are not searching your brand, they are searching the product type.

Reviews become your brand.

Consumers will look at the price, then the number of reviews, then the quality of reviews before starting to read the comments. If the comments are off or even if there are not enough, the consumer will be hesitant to “buy now” or “add to cart.”

By incentivizing purchasers through discounts and focusing on quality and customer assurance, you can build and strengthen a “review moat”

Have a portfolio of niches rather than a focus on cross-selling

In his podcast interview, Ali talks about one aggregator who owns a mobile whiteboard business, a gravy separator business, an HDMI business, a shower curtain liner business, and a coffee craft business.

The beauty of these products is that they’re almost entirely uncorrelated to each other. Too often, when someone goes in and tries to cross-sell products it doesn’t work on Amazon’s platform. This is because of the nature of the search and discovery native to Amazon’s website.

When the site recommends products, they are sorted based on reviews, comments, price, and relevancy. Sure you may have a related product to say, shower curtains, like a bath mat, but there’s probably a more dominant seller with a review moat already in that category. It may make sense to buy them and move into that category, but when other sellers in the market see one product category dominanting, competition piles in.

Best to diversify.

Be the best at selling scissors

Amazon is great at selling high volume low average selling price SKUs because of the scalability of the take rate when using FBA. If you can become dominant in a very specific and commoditized product and form a review moat around it, moving the quantity of that item can be profitable.

4. Who are the Big Dogs?👉 The Biggest and Baddest in the Space: Thrasio

Any time you have massively successful platforms, a goood business idea is to build ontop of this platform as a shortcut to scale. Veeva did this on Salesforce, Pinduoduo did this on WeChat, and Thrasio has been doing this on Amazon.

Thrasio is one of the largest aggregators in the FBA space. They go around and buy individual stores and brands to add to their portfolio in the hopes of increasing sales and cutting costs, dropping it all down to the bottom line.

In October, they also landed a fresh $1 Billion in funding which pushed the valuation up to $10 billion. They have paid over $600M for more than 150 acquisitions in the FBA space. They cover over 200+ brands, 22K SKUs, and 124 channels and marketplaces.

When Thrasio makes an acquisition, no two deals are the same. They frequently have earnouts scheduled so that the merchant they are buying the store from can participate in the growth of the business that they worked so hard to build.

Since Amazon focuses on high volume and optimizes for lower average sales price, it’s frequently a scale game and Thrasio does just that by rolling up these vendors.

5. Downfalls 👉 Why it’s hard to Succeed

We always try to look at both sides of the equation, and its not all sunshine and rainbows in the FBA space. Below are some of the key areas on why its hard to do this:

Amazon poaches the product

At the front and center of all the anti-trust debate re:Amazon lately is the copying of 3P products and promoting their own brands.

Amazon has been shown to create exact replicas of products sold by 3P in order to bring them private label and cannibalize other vendor marketshare.

This is a huge problem to the ecosystem if it becomes even more rampant because Amazon will lose the trust of a key part of their supply.

Amazon demotes products if you mess up on inventory for too long

Ali explains that the number one way to ruin your Amazon business is to run out of inventory. If you stock out too many times, Amazon will de-rank your listing, and what will happen is your competitors realize that you’re starting to run out of stock, or selling back inventory if you don’t have quality assurance.

The competition will then start spending more money on advertising to try to completely sink your product whereby a demotion flywheel takes over.

You’re at the mercy of Amazon’s Terms Of Service (ToS)

If you ever break Amazon’s ToS, good luck reselling your business. If you do anything like trying to drive traffic off-platform, write fake reviews, mess up on labelling, sending unapproved products, etc… you’re toast.

When you are labelled as a bad actor its incredibly difficult to get back on the good side of papa Bezos.

You don’t own the customer, Amazon does

When the customer goes shopping for the product, they go to Amazon’s site. When the product arrives, it’s in your packaging, but not before sitting on the doorstep in Amazon’s packaging.

By the very nature of the discovery of the product, the consumer is not really brand-focused during the selection process. They look at the price, the competition, and as mentioned above, the reviews.

Wrapping Up…

The new economy is a digital one. There are more and more ways to make money online every single day.

If you can master the ins and outs of a platform and learn how to scale this business it can be incredibly lucrative. But there are no shortcuts. You have to do the work just like any other business.

And like any other money-making idea, there are a lot of scammers out there.

So do your work, and get it right.

Oh and remember, I am long and strong Amazon.

Until next time. Always Yours. Incessantly Chasing ROI,

-Genevieve Roch-Decter, CFA

P.S Bitcoin went on sale this weekend. You know what to do ; )

Sources:

https://www.shipbob.com/blog/amazon-fba-fees/

https://techcrunch.com/2021/10/25/thrasio-the-amazon-aggregator-raises-1b-in-fresh-funding-at-a-valuation-of-up-to-10-billion/

https://joincolossus.com/episodes/17446067/hamed-amazon-aggregators-buying-third-party-sellers?tab=transcript

What else we Grittin’ On?

CASH IS TRASH. Legendary investor Ray Dalio says cash isn't safe because it will be taxed by inflation. You'll never guess where he thinks your money should be (it's stocks).

FAT PROFITS. The only thing growing faster than inflation over the last 2 quarters are profits for U.S. corporations, who just posted their fattest margins since 1950. The American worker just picked up a new bargaining chip.

LAWSUIT TAG. Peloton sued Lululemon who then turned around and sued Peloton right back. This is the Spiderman pointing at Spiderman meme come to life.

SPARC. Bill Ackman files for public offering for a special purpose acquisition RIGHTS company which will issue warrants that give holders the right to purchase common stock. Because the only thing the SPAC market needs is muddier waters!

BORING. The stock market selloff spills over into Bitcoin and the rest of the crypto market. That sound you just heard was the collective yawn of HODL'ers everywhere.

Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page.  All statements and expressions herein are the sole opinion of the author or paid advertiser.

Grit Capital Corporation is a publisher of financial information, not an investment advisor.  We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.  

THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME.  THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION.  INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.  

Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable.  They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.  Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein.  The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.

The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities).  To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

By using the Site or any affiliated social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.

For Full Terms of Use Click HERE. For the Privacy Policy Click HERE.