Amazon on Fire: A Discussion of Vendors

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(JOHN MACDOUGALL/AFP/Getty Images)

The Amazon logo features a bowed arrow leading from A to Z, symbolizing that the company provides an all-encompassing range of products, delivered with a smile. In the quarter century since the company was launched in the garage of a rented home, it has revolutionized marketing and retailing worldwide. Unlike brick and mortar stores, the marketplace is limitless and timeless, both to the advantage and disadvantage of its vendors. This ever-changing market was the subject of a discussion between Hamodia and several vendors who peddle their wares on the Amazon platform.

Eli has been selling on Amazon for three years. His catalogue includes thousands of products in five categories.

Ariel entered the Amazon market five years ago. His catalogue is diversified and includes products from many major categories, including clothing, outdoor items, electronics.

Yehudah has been a vendor for seven years. He deals mainly in closeouts, so from month to month, his product line varies.

How did you enter the Amazon market?

Eli: I was working in real estate doing rentals, and I took an Uber pool home from my chavrusa’s house one November evening. The fellow sitting next to me was a vendor who was overwhelmed with sales for the year-end shopping season, which caused him to be tremendously shorthanded. He asked me if I wanted to earn some extra money, and I agreed to try it out.

In my real estate work, I wore business attire, and I showed up to his warehouse thinking the job was one in the front office. I was surprised when the first job they assigned me was to count a box of cell phone clips. The second job was to separate the holders from the clips, since they sold each piece separately in order to increase their profit.

The boss came in and whispered to the manager that he was certain I would leave within an hour. “This type of work is just not for him!” He called me into his office, and after we spoke a while, he said he had confidence in me that I could make a good buyer. “But I am just too busy to train you in. If you are willing to figure it out on your own, the job is yours,” he said.

I took the job, and it was like jumping right into the fire. There is a lot involved, but with siyatta diShmaya, I caught on quickly and it’s been very rewarding.

Ariel: I was selling electronic products wholesale. The profit margin on electronics is slim, and I realized that many of my clients were indeed selling them on Amazon. The entry into Amazon is not too difficult, and the transition to selling on the platform went quite smoothly. As time went on, I branched off into several categories, including fashion, outdoors, and my old electronics items. At this time, I have 150 employees working for me.

Yehudah: I was learning in kollel for seven years, and with my growing family, I realized that I needed more income. I spoke at length with one of my Rebbeim, and he recommended that I look for something to do bein hasedarim that had the possibility to expand into something full-time in the future. When I asked him what type of business that might be, he said that unfortunately, he did not know, and it was my job to find out.

I spoke to several friends, and I heard that several yungeleit were selling on Amazon during their free time. One of them was kind enough to spend several hours with me to explain everything I needed to know in order to get started.

The next thing I had to decide was what to sell. I had limited funds available, so I decided to look for closeouts. After several hours of Googling, I found an item that was reasonably priced and seemed like something people would buy. The surprising thing is that it was not a closeout, but something that I still sell, and still sells well. I began with just a few hundred pieces and expanded from there.

Today, I am still in yeshivah, and I work on my Amazon between sedarim. So it worked out well for me.

It seems that many vendors are secretive about what they are selling. Why is this so?

Workers pack and ship customer orders at the 750,000-square-foot Amazon fulfillment center.
(Scott Olson/Getty Images)

Ari: Vendors are constantly looking for items that they can sell, and in this line, almost any listing can be duplicated by someone else. They just have to find a source to supply them with the item and they, too, can list it and sell it. So if you don’t protect yourself, you leave yourself open for a competitor to take away some of your sales. The more people selling the same item, the thinner the pie is sliced. I myself am always on the lookout for items to add to my catalogue.

Eli: I think we should explain how Amazon basically works to give you a better idea of what we are worried about. Let’s say you list an item and there are another nine people selling the exact same item. When a consumer searches for it, he clicks “add to cart,” which activates what we call the “buy box.”

What actually takes place is that the buy box rotates between vendors approximately every 17 minutes. This is determined by an algorithm, which takes several factors into consideration. The vendor who “controls the buy box” at that time gets the sale. So if a particular item sells 2,000 pieces a month, and there are 10 vendors selling it, each one will conceivably get 200 sales per month. But if there are 20 vendors, they will each be reduced to 100 sales. Now the exact amount may be slightly off, since the algorithm will give some vendors a bigger percentage. Nevertheless, more vendors leads to a smaller portion of the pie.

Yehudah: In my line, I am less concerned with that. Since I buy closeouts, there is a smaller chance of someone duplicating it.

The disadvantage I have is that my line changes literally from week to week, depending on what type of closeouts are available at the time. But it really has little effect on my customers, since when someone searches for an item, they are not looking at the vendor, and they actually have no idea who is selling to them. With Amazon, I do not have a loyal customer base. I have no need for PR or advertising, since they are not my personal customers, they are Amazon shoppers.

What are the advantages of selling on Amazon versus selling in the classic brick-and-mortar stores?

Orders move down a conveyor belt at the 855,000-square-foot Amazon fulfillment center in Staten Island, one of the five boroughs of New York City, on February 5.(JOHANNES EISELE/AFP/Getty Images)

Yehudah: As I said before, Amazon allows me the flexibility to set my own schedule. In addition, the startup costs are much less than for brick-and-mortar stores, since I don’t have to rent a storefront or hire salespeople to staff the registers.

Eli: Besides those benefits, one of the biggest advantages it has is the worldwide market. If I open a store, the sales are determined geographically. On the East Coast, by 6 or 7 o’clock, the customers are home eating dinner, and the sales end for the day. With online sales, the customer base is not timebound; 7 o’clock EST is 4 o’clock in L.A., and the consumers are still buying at that time. So, in essence, my store hours are 24 hours a day in 50+ states.

Another advantage of Amazon is that it takes care of many costs that the brick-and-mortar stores have to carry themselves. Besides the reduced startup and PR costs mentioned by Yehudah, there are other expenses which are borne by Amazon. The platform is already built and running, and a vast customer base is familiar with it. I don’t have to build it, nor do I have to attract the customers or teach the customers how to use it. Amazon also takes care of customer service, so that is another huge savings for me.

Besides what Amazon provides, the business model lends itself to ease of use. Of course, finding a product may be time-consuming, but once I have a product and I list it, it is done, and I am free to begin the next product, since the selling is done automatically. There is some troubleshooting, but I am not busy with it as much as I would be in a brick-and-mortar store.

The proprietor of a brick-and-mortar store has to stock many items, some of which sell better than others. If it is a baby clothing store, he must stock onesies, pajamas, stretchies, and perhaps even Shabbos outfits. I can limit myself to what is selling and focus on that. If I get a good deal on onesies, I will focus on that, and leave the stretchies to someone else.

Ariel: There is another savings with Amazon. When I was selling electronics, I saw that the store had to employ salespeople who were somewhat knowledgeable about the product. They had to be able to explain to the customer the different products available, and detail what features one product had over the other. Finding such personnel was time-consuming and expensive. In Amazon, most of the customers already know what they want; they come armed with the information, perhaps from stopping in at a brick-and-mortar store, or perhaps by researching the item before connecting online. But once they log in, the platform does the selling by itself.

Another savings is that I do not have to rent space in a high-traffic area. I can choose any location, and the customer is no worse off for it. That alone is a substantial savings to the cost of running my business.

I’m sure there are some disadvantages in selling on Amazon versus selling at the classic brick-and-mortar stores. What are they?

A package is labeled at a SLAM — or scan, label, apply and manifest — during a tour of Amazon’s Fulfillment Center, September 21, 2018 in Kent, Washington.(GRANT HINDSLEY/AFP/Getty Images)

Ariel: I think we can all agree that when we open our emails after Shabbos or Yom Tov, we are always apprehensive to see if there was a major problem, and one product or even our entire account was suspended.

Anytime you violate Amazon policy, you are at risk of being shut down. The policies don’t always make sense to the vendors, but it is the policy and it must be followed. Amazon is a customer-based business, not vendor-based. So they structure it in a way that favors the customers and puts the vendors at a distinct disadvantage.

One of the main policies is that the vendor must reply to customer complaints within 24 hours. If a customer lodges a complaint 10 minutes after hadlakas neiros, I won’t see it until 25 or 26 hours later, and I can be found in violation of Amazon policy. Yom Tov, of course, is two days, or three days if there is a Shabbos involved as well. So when we log on, we are nervous what we may find.

This can happen at any time, and it is complicated to rectify. I was once on a family vacation. As soon as I landed at our destination, I received an email from my manager that our account was suspended. I had 150 workers who were stuck with nothing to do until I got reinstated. I sent my wife and children to enjoy themselves while I spent the next day and a half holed up in my hotel room emailing Amazon, my workers and the company I use to help get me back online. Needless to say, my vacation was ruined.

Eli: I’ll agree that the fear of getting suspended is always there, and it is troubling. Many times, you are just told that your account has been suspended, and you can’t figure out what the reason is. Which Amazon policy did I violate? When you send an email to Amazon, you often get a form response which does not help clarify what the problem is.

There is an entire industry of companies that help reinstate you, but it costs money. They work on finding out what the problem is, and write up a “Plan of Action” to rectify it. But it is well worth the effort, since they are more experienced at discovering what went wrong, and they know whom to contact and what to write in order to make it right.

Yehudah: Let me add that there are two types of suspensions: a one-item suspension and a suspension of the entire account. For a violation of policy, your entire account may be suspended, which can ruin your business. A one-item suspension will stop you from selling that item.

On two occasions, I was notified that one particular item was suspended, each time for a different reason. I sent several emails, and kept on getting the automatic response that I was in violation of an Amazon policy. After several tries, I finally got a response as to what I did wrong.

Amazon is also extremely sensitive to counterfeit products. So if someone is actually manufacturing a counterfeit of a brand name and selling it, Amazon will close them down for good.

One time I was faulted with selling a counterfeit item. I provided Amazon with the paperwork showing that I bought it legitimately, but it was still a hassle getting the suspension removed.

Another time Amazon said that the item I was sending arrived damaged and was returned too often, meaning more than 10% of the time. The item was a mirror, and it was damaged because Amazon packaged it in a flimsy padded envelope instead of a sturdy box. Another time, I was notified that the item was hazmat (hazardous material), which Amazon will not ship FBA, but it will allow it to be listed as FBM.

Can someone explain those terms?

The Amazon fulfillment warehouse in Middletown, DE, on July 26. (WATSON/AFP/Getty Images)

Eli: Let me begin by clarifying that there are three basic ways to sell on Amazon. FBA means that that it is Fulilled by Amazon. For example, I find a bed which I can get for $50 and I can sell it for $100, but I need to deliver it to the purchaser. I can ship my stock to the Amazon warehouses, and they will ship them to the customers. Amazon charges a 15% referral fee, and will also charge you the shipping fee, which is based on weight and distance. Let’s say this is another 15%, so on the $100, you paid Amazon 30%, or $30. For this, Amazon gets a competitive price on the shipping, and they handle all customer service and any credit card fraud. Your net profit is 20%, or $20.

FBM stands for Fulfilled by Merchant, which means that the merchant will handle the shipping.

You may find a supplier who handles the shipping, in which case it is drop-shipped and the vendor never takes physical possession of it; the profit margin may be higher, there is less or no overhead, and the vendor has no outlay for inventory. But the sales are usually lower, since it will take longer for you to control the buy box.

You may also receive delivery of the item and ship it yourself, provided you have the facilities and manpower. You still pay the 15% referral fee, but the shipping is on you, not on Amazon. When it comes to shipping, hazmat has many limitations, and Amazon does not deal with them. So you can sell it on Amazon, but it must be FBM.

The third way to sell is called Private Label, which means you decide to manufacture a mattress in China and sell it. It is you who owns product, with no competition.

Yehudah: Until another vendor sees it and decides to produce a knock-off in China as well …

Eli: Correct, and that is all the more reason to be secretive. With a Private Label product, there is no data available as to how well it will sell, and the vendor is projecting the demand for it.

When selling something as Private Label, it is important to create a listing which will depict the quality and advantages of this new product. So marketing the product is key in this category.

Yehudah: This is another area where an entire industry has emerged. There are companies which specialize in creating an eye-catching listing, which may include not only pictures but videos and other gimmicks, which entice the buyers.

What are some other disadvantages of Amazon as opposed to brick-and-mortar stores?

Ariel: There is a more basic concept, which is that the customer is not my customer, he is Amazon’s customer. I cannot solicit them, and as we explained in regard to policy violations, I can’t set the terms of the sale.

Another challenge is that in a brick-and-mortar store, the prices are more stable, while in Amazon, a competitor’s price may suddenly drop. At times, I see a competitor selling for a slim margin, perhaps a $1 profit, when it usually sells for a $10 profit. It might be that he has a credit card bill due, and he has to raise cash fast. So we have to be on the lookout, and adjust ourselves accordingly.

Eli: Don’t forget about the buyers who purchase 40 pairs of shoes and return 39 of them, leaving us with the shipping and return fees. But that is part of the business, and all of that must be included in the price structure.

We mentioned before the issue of Shabbos and Yom Tov. How do you handle this?

Parcels are processed and prepared for dispatch at Amazon’s fulfillment centre. (Dan Kitwood/Getty Images)

Yehudah: The various she’eilos which come up with selling on Amazon, and all online selling for that matter, are complicated indeed. In fact, Rabbi Yosef Kushner, a member of the Bais HaVaad of Lakewood, wrote Commerce and Shabbos. He devotes a large section to dealing with the many issues which come up based on the psakim of his father-in-law, Harav Shlomo Miller, shlita, of the Toronto Kollel and its beis din, as well as that of the Va’ad Harabonim of Lakewood. The Rabbanim and Dayanim in Lakewood are quite familiar with the Amazon she’eilos, and I know people who were consulted by them to clarify the technical aspect of how Amazon works in order for them to arrive at a precise psak. The opinions may vary, and every vendor should have a Moreh Horaah to consult with.

I know some people who close their Amazon store for Shabbos, although that may be for hashkafah reasons rather than for halachic ones. I personally close for all eight or nine days of Yom Tov, which helps me avoid most of the issues, although not all of them. If there is a pending sale or issue, you are still liable to fulfill it when it comes through even if your store is officially closed. Nevertheless, by closing my store, it does make the Yom Tov more restful and enjoyable.

There have been some objections to Amazon from retailers, both from within the Jewish community and from the outside. How do you answer them?

Parcels are processed and prepared for dispatch at Amazon’s fulfillment centre. (Dan Kitwood/Getty Images)

Eli: The truth is that whichever way you look at it, this is the market of the 21st century. Just like taxies put the baalei agalah (horse and buggy drivers) out of business, and Uber and Lyft cut into the taxi medallion business, so too the marketplace for retail has changed. Sears’ catalogue no longer exists, and for that matter, Sears itself barely exists. So the market has changed, for better or worse, and the vendors who enter it are just following the trend.

As far as the Jewish storekeepers who may be losing out, the truth is we are not targeting Jewish customers. We are competing in a national or even a global marketplace, and if they don’t buy from me, they will buy from someone else in Kansas.

I would also like to point out that there is still a substantial percentage of people who wish to shop in the local brick-and-mortar stores. As I said before, I may only sell onesies. If someone has to purchase an entire layette for a baby, they most likely would prefer to go to their local merchant where they can get the onesies, the pajamas, and even the bedsheet for the crib. There is a certain convenience in that, and the brick-and-mortar stores know that they have to focus on that.

Yehudah: I would like to add that among Jewish vendors, there is a lot of cooperation and chessed. As I explained before, when I entered the market, my friend spent hours helping me understand how to navigate it.

Once, at a trade show, a non-Jewish vendor who sells to many frum Amazon sellers watched how we interact at the show, and he commented how amazed he is that even though we are all competitors, we nevertheless all help each other. He never saw the Walmart and Target buyers help each other at the trade show!

If someone has a problem, there is always someone to reach out to for help. In fact, there are several chat groups for different categories where you can turn to for information and advice. In addition, one of the experts in getting a site reinstated is a frum person, and he is helpful in countless ways.

Eli: Let me add that this fellow organized an event recently where 1,000 Jewish vendors attended and networked on a whole host of issues. The chessed of those involved, like many things that Klal Yisrael does, is admirable and unique.

Yehudah: There was a time when I received a call from another vendor who told me that he was aware that I had an item, and he advised me how to draw higher traffic. I thanked him, but wondered why he directed me there, since he had the same item listed there, and by me transferring to that listing, he would be losing some of his own sales.

“It will be better for your parnassah,” he answered. “As far as mine, it is all in the hands of Hashem, and Amazon is but a means for Him to send brachah to Klal Yisrael.”