At the end of January 2020, I had the opportunity to speak with James Thomson and Whitney Gibson, the authors of a new book Controlling your brand in the Age of Amazon. As Amazon’s dependence on third-party sellers has grown from 3% in 1999 to 58% of Amazon’s retail operation, it becomes critical for brands to control the Amazon channel properly.

Thomson, the first Fulfillment by Amazon (FBA) account manager and Gibson share actionable strategies for brands to use to gain or regain control over Amazon sales. It is worth noting that the authors deal with brands on a daily basis. Marketplace channel management in their full-time occupations, Thomson on the consulting side as a partner at Buy Box Experts and Gibson as a Partner at Vorys, Sater, Seymour and Pease LLP.  This enables e-commerce executives to leverage expertise gained from helping brands use Amazon as a profitable channel for e-commerce sales.

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Despite the cascade of store closings, liquidations and bankruptcies, there are strong indications that pure-ecommerce, not stores, may be the endangered model. 13D Research This was an article I highlighted in my weekly ecommerce newsletter and this quote from 13D Research has been sticking in my mind. We are in a new phase of commerce in which a combined online and offline strategy will determine who are market leaders. I don’t believe this as being the moment for omnichannel (I despise the word as it is a buzzy concept that could mean a thousand things) but rather the first time in history that commerce is an experience on and offline.

The dot.com thinking

Retail has been dead since 1999 according to startup founders and ecommerce investors. Every purchase should have gone through ecommerce and physical retail should have not existed according to these subjective individuals. The simple truth for me is that we are beginning to see the creation of integrated commerce. Amazon, Walmart, Alibaba and JD.com are investing in retail locations as well as their online efforts to grow market share and leave their competitors extended financially and at their mercy.

Retail is ultimately at a tipping point and their is no turning back. If you are a pure play ecommerce business your customers are going to walk into physical locations of your online competitors. The real story is that we have 4 horseman in 2 large geographies that have large balance sheets we are a point of innovation and change.

The final indicator of this change was Amazon acquiring Whole Foods Market out right and making it a subsidiary. Jeff Bezos always said that Amazon would open stores when it made sense.

The simple truth is that we are beginning to see the creation of integrated commerce. Amazon, Walmart, Alibaba and JD.com are investing in retail locations as well as their online efforts to grow market share and leave their competitors extended financially and at their mercy.

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Noon.com is going to battle to grow market share in the Middle East ecommerce market. Amazon purchasing Souq.com might be one of their more prudent acquisitions and have huge long term upside for Amazon and Middle East customers. Noon.com is yet to launch and seemingly are going to struggle to catch up to Souq.com.

Troubles at Noon.com

In hindsight one can now understand why Emaar Malls bid $800 million to acquire Souq in the midst of the Amazon acquisition talks. As a mall operator that has a dominant business in the Middle East and online platform like Souq could have negative future impact for eMaar Malls. What Emaar Malls did not bargain on is that the shareholders of Souq.com would ultimately sell to Amazon for $580 million. One of the most underrated elements of Amazon’s impact on global ecommerce is their ability to negotiate fair pricing for the businesses they acquire.

Souq, led by its founder, Syrian entrepreneur Ronaldo Mouchawar, fills an important geographic gap for Amazon. The e-commerce company sells nearly 2 million products — books, electronics, toys, home products, and more — to customers in countries such as United Arab Emirates, Egypt, and Saudi Arabia.

The domain experience that the Souq team has is not to be undervalued and thus it is obvious to see why eMaar Malls would want to purchase the business at a significantly higher price.

Joining the Amazon family will enable us to drive further growth, benefit from their technological investment, offer an even wider product selection through worldwide sourcing, deliver an enhanced customer service experience, as well as continue Amazon’s great track record of empowering sellers locally and globally.

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In March I was part of a community conversation about what makes a Direct to Customer (DTC) business. Web Smith of  2PM was kind enough to feature this in his newsletter Issue 197 (which is a must read and subscribe).

These businesses go by different names depending on your opinion about the industry. Andy Dunn calls them DNVBs (Digital Native Vertical Brands), M. Paul Munford refers to them as MLC’s (Modern Luxury Companies), I see them as Direct to Customer (DTC) as I believe that is the most important part of their brand power.

1. How do DNVB’s succeed in an economy that places premiums on horizontal eCommerce (Walmart, Amazon, Target)? They enter new spaces and establish consumer loyalty. The consumer relationship can be just as important as the product itself.
2. There is no middle of the eCommerce market in any vertical. Either you’re great or you’re gone. Amazon destroys “middle” by using their financial muscle to drive said business into the ground.
3. So how are the DNVB’s doing as a whole? A lot of the supposed winners are cash hungry, burning platforms of doom. I am not going to name anyone, but ask yourself one question — why are certain brands constantly in publications such as Recode, TechCrunch, or Fortune? Fashion public relations is often a cost-center disguised as a profit-center.
4. Consumer Packaged Goods startups (Harry’s, Walker and Co., Dollar Shave Club) have a lot of upside as publicly-traded incumbents are in need of millennials for continued growth. There is a premium on CPG-specific DNVB’s for this reason.
5. For DNVB’s to survive they must be both vertical and specific. What do they possess? (1) A limited selection of products with marketing and operations optimized for long term margin growth and (2) an authentic story. Tracksmith, Tuft and Needle, and M.Gemi have stayed true to their roots, are cash efficient, and are run by driven entrepreneurs. They have solved customer retention woes by using tech, clever brand-differentiation, and the sourcing of excellent products.
6. The sudden growth of the vitamin and supplement category has long term growth prospects. As health becomes a global driver of decisions these direct to customer businesses are able to access educated customers with a new breed of products that are cost effective and have repeat purchase implications.
7. For DNVB’s to be sustainable — LTV (customer life time value), retention costs, and unit economics need to be the priority on day one. The brands that succeed have to operate like they’ve raised little to no money at all.

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