Inflation drives up costs on all sides for market sellers

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First, sellers on marketplaces like Amazon, Etsy and many others have had to contend with increased freight and shipping costs as the pandemic has led to more and more people trying to ship merchandise across the globe to satisfy the appetite for online shopping. Then, demand for goods drove price increases in everything from packaging to raw materials.

Today, many marketplaces they sell on are also increasing fees, as they too are struggling to cope with rising fees; Amazon recently announced that it will charge holiday peak fulfillment fees to merchants who use its FBA (Fulfilled by Amazon) service. As a result, many marketplace sellers are trying to find other efficiencies in their business – like lower customer acquisition costs – to avoid raising prices, which could mean ceding market share to competitors.

“It’s a balancing act. It’s not just cost increases due to inflation and the supply chain, but sellers are also still facing raw material shortages,” said Phil Masiello, founder of the superfood powder brand. Uplift Florae and CEO of revenue acceleration agency Crunchgrowth.

For example, Masiello said some of its customers in the personal care industry were having trouble getting enough lids for some of their jars, leading to stock-outs for key products. “On top of that, the costs have gone up. Shipping costs have gone up, so you see continued inflation,” Masiello added.

According to an August 2022 survey of 1,000 U.S. online sellers who make between $500,000 and $100 million in revenue, merchants are struggling with rapidly shrinking margins. The survey – conducted by warehouse platform Ware2Go and online market research firm Dynata – shows that 59% of sellers report that their margins have shrunk. Some 95% of sellers have made adjustments or updates to their peak holiday season planning. The survey also found that 80% of sellers surveyed saw supply chain costs increase. As a result, they have had to adapt by raising prices to cover costs, adjusting headcount and suspending growth plans.

Wellness brand Beekeeper’s Naturals said it is doing everything possible to “keep pricing consistent and provide an accessible price point for consumers looking for natural and effective products, regardless of platform,” Daniel said. Millar, co-founder and director of growth at Naturels de l’apiculteur. Beekeeper’s Naturals sells its products through Amazon, as well as Grove Collaborative, iHerb, Target, Walmart, and CVS.

“We have been able to maintain this despite intense cost pressures in this inflationary environment. On Amazon, Fulfilled by Amazon [Fulfillment by Amazon] shipping prices to customers, as well as the cost of shipping to Amazon warehouses, have increased over the past few months, which has impacted the economics of this channel,” Millar added.

According data from Marketplace Pulse, Amazon has increased processing fees by more than 30% since 2020. This 30% increase did not happen all at once, but rather piecemeal. In January, Amazon increased its FBA fulfillment fee by 5.2%, then in April it added a fuel and inflation surcharge of 5%.

Although Beekeper’s Natural hasn’t raised prices in the past year, Millar said, the brand is constantly looking for additional manufacturing and packaging partners to maximize profitability.

Another factor helping Beekeeper’s Natural maintain margins is seeing “really healthy customer acquisition costs on Amazon” compared to its own website and other third-party marketplaces, Millar said. On Amazon, Beekeeper’s Naturals “Propolis Immune Support Spray” ranked number one in the cold and flu category, the company said. Millar credited Amazon advertising tools like the Amazon Marketing Cloud for providing strong data analytics that help the brand gain greater visibility into their Amazon business, allowing them to be more effective.

Masiello said raising prices sharply could mean a brand could find itself out of the running to compete with its peers. “We cannot continue to increase our prices by 20 to 30% without hurting sales. So you have to look at ways to reduce operating costs, so you can absorb some of that, so you don’t raise your retail prices so high that you’re out of the game,” Masiello said.

While most sellers have to deal with rising prices on their own, there is a way for the markets to ease some of the burden. Etsy says it was able to help some of its sellers offset the price hike by giving them more selling and promotional tools.

“We don’t see sellers taking their net prices to account for the higher input prices they have,” Rachel Glaser, Etsy’s chief financial officer, said at the company meeting. second quarter earnings call. Merchants on Etsy have increased their list price on items by about 9% over the past five years, but Glaser said Etsy’s promotional tools have helped offset those increases. “The result is that it actually completely offsets the increase in item prices, which means that the net price of items has remained virtually flat for five consecutive years,” she said.

In November, Etsy held an extended Cyber ​​Sales event that ended December 1 with participating sellers offering up to 60% off. The the company said it helps sellers promote their listings to buyers outside of Etsy. He also launched a Holiday Advance Sale Event offering discounts of over 20% in the first half of November. In June, Etsy also announced plans to invest at least $25 million each year in a so-called “purchase protection program” to cover refunds on behalf of sellers for qualifying orders up to $250, to help them retain sales revenue when events occur beyond their control.

ETSY U.S. Market Share of Discounted and Discounted USD Orders as a Percentage of Listed Amount

In turn, YipitData observed that the share of US orders on Etsy that are discounted, and the total amount discounted, have been steadily increasing since August 2020.

Yet Etsy sellers also had to contend with rising fees earlier this year. On Feb. 24, Etsy CEO Josh Silverman told investors the company was increasing seller transaction fees to 6.5% on each sale, up from 5%. Some Etsy sellers staged a strike in April to protest the 30% hike in seller transaction fees.

That’s not the only problem sellers in the rising cost market have had to deal with. For sellers like Doe Lashes selling on Amazon and Shopify, the cost of customer acquisition has tripled. “Over the past year, our CPA [cost per acquisition] has effectively tripled from what it was before, which makes it very difficult to break even,” Doe Lashes founder Jason Wong told Modern Retail. “It’s something that every seller has been through for the past year is that cost increases and inflation have happened across the board,” Wong added.

Data from Ware2Go shows that the holiday season is not going to offer sellers respite. Its survey found that 42% of sellers expect holiday sales in 2022 to be lower than in 2021, and sellers are slightly less confident of this season’s success due to greater macroeconomic uncertainty.

The study found that 74% of shoppers are changing their shopping habits this holiday season given the current economic conditions. On top of that, 67% of sellers say they are facing inventory issues in 2022.

“What’s concerning is that the supply chain still hasn’t fully recovered – plastics, metals and other components haven’t fully recovered,” Masiello said.

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