The Case for eBay — Why I won’t get distracted by FBA’s shine
Article Written By Nahum Zak of TheResellerBible.com
I’ve always been a contrarian at heart. Though I have made some mistakes with this philosophy (I am both a Mets and Jets fan after all), swimming against the tide of common wisdom has generally served me quite well in my life.
In 1997 I entered the workforce rather than accrue loan debt pursuing a Masters Degree. The following year I married Alli, the love of my life, at the age of twenty-one. We spent the following year, and our wedding money, honeymooning overseas. Ten years later we relocated our family of six from New York to Florida and never looked back.
In retrospect I consider all of these to have been some of the best decisions of my life and yet had I had listened to the herd’s ‘common wisdom’ I would have never pulled the trigger on any of those decisions.
In truth I believe any successful entrepreneur needs some measure of contrarian ability in order to succeed. Disagree? Great, you just helped me prove my point.
So when I notice the Reselling community shifting its preferred platform overwhelmingly from eBay to Amazon FBA and eBay Gurus like Steve “Raiken Profit” Raiken and David “GilDaddy” Gilman migrating significant portions of their efforts and businesses from eBay to Amazon the contrarian in me screams for pause and contemplation.
I need to be clear now. I am writing in support of keeping eBay in your reselling portfolio. I am however NOT implying that you should be scaling back your Amazon business or anything negative about FBA. I sell through Amazon myself. A whole lot.
The Amazon FBA side of my business is projected to reach nearly $400K in sales in 2016 through both Wholesale, Retail Arbitrage (RA) and a Q4 private label release. By contrast my eBay store is projected closer to $125K; a number I am quite proud of, but it is relatively paltry compared to my Amazon projections.
Further, when factoring in the reality that I spend roughly the same amount of effort/time on each platform, conventional wisdom would certainly suggest that I shutter my eBay store in order to double my sales on Amazon.
And yet when I envision the future of my business I believe that my eBay store needs to and will organically grow at a faster pace than my Amazon store.
To understand why we must first understand the appeal of Amazon FBA and several critical statistics.
Amazon FBA has become the Reseller venue of choice and spawned the entire niche of Retail Arbitrage for several compelling reasons: A) It is ridiculously easy to list items on Amazon B) Merchandise generally sells at both a higher price and velocity. C) Annual sales growth of over twenty percent while eBay has been growing at a pedestrian five percent. D) The ease of the FBA process where Amazon stores and ships your products while handling customer service issues.
Sounds incredible, right? It really is.
In contrast, ask the classic eBay vs Amazon question and the only advantages to eBay you might hear about are lower fees, niche markets and quicker payouts.
To this contrarian however, there are a number of critical factors that compel me to continue investing in my eBay business despite the short term advantages elsewhere.
One: Numbers don’t always tell the whole truth.
The numbers seem clear: Amazon’s forward sales growth projects to be over twenty percent over the next five years. Ebay only projects to five percent.
Clear advantage to Resell on Amazon right? WRONG.
This is because we generally forget to factor in the growth of other resellers on those platforms. Growth of other Amazon sellers grew by more than 65% worldwide, and though its hard to find numbers projections for 2015 it is a safe bet that the number of sellers on Amazon should grow at least 40% for the coming 5 years.
This means that the market share per Amazon reseller is actually projected to shrink for the foreseeable future.
By contrast eBay, though only projected to have grow its sales by five percent annually, has seen it’s active seller growth stay flat for several years at 25 million, perhaps due to so many leaving to Amazon.
I’m sure eBay management is none to happy about that reality but for resellers it means that our opportunity is only become wider.
Two, Residual Sales.
This is meant more for the majority of us who do retail arbitrage. Amazon book sellers and private labelers please skip to number three.
Retail arbitrage on FBA is generally a quick nickel game where Resellers accept lower margins in exchange for quick sales. After all, everyone is buying the same items from Walmart that you are and if you don’t move your inventory quickly the dreaded ‘Race to the Bottom price’ is always a possibility.
There is nothing wrong with that, it’s what I do. The end result though is that sellers plateau on inventory relatively quickly. This means that they reach the level where they are selling roughly as much inventory as they are buying and therefore (absent of any change to their business model) their growth stops.
I personally have noticed that I stall in RA somewhere around 1200 items in my inventory. This means that should a seller need to take a month off for vacation or an illness (as I did this past month) they would notice their FBA income dry up fairly quickly.
Once we stop feeding the Amazon RA beast it shrivels up and dies pretty quickly.
By contrast, due to its generally higher margins, eBay sellers can afford to be more patient. This slow dime approach means that while most Amazon RA specialists turn their inventory over every 2-8 weeks eBay stores generally remain productive far longer.
In my case since, I generally sell roughly ten percent of my eBay inventory a month, I can count on my inventory continuing to generate money for me for well over six months.
This proved especially important this past month when I fell ill. While retail arbitrage barely produced thirty percent of its usual numbers my slower and steadier eBay barely had a hiccup, proving it to be a great insurance policy and critical investment.
Three, Suspension Risk: Much scarier on Amazon.
According to Cynthia G. Stine in her excellent book Suspension Prevention “Every day, dozens to hundreds of (mostly) decent seller get suspended or banned…”
In fact, Amazon accounts are being suspended at such a rate that an entire industry spanning several books and dozens of websites have already sprung up simply helping the growing number of suspended accounts.
Lest you think that this can never happen to you because your account is in good standing, please take note that a significant portion of these suspensions receive no prior warning from Amazon and were in good standing with 100% positive buyer feedback prior to suspension.
Scarier still, knowing that a confluence of several negative feedbacks and/or counterfeit claims (even if false) can cripple a competitor; rumors abound of ‘Amazon Assassins for hire’ whom competitors hire to overwhelm accounts in good standing into suspensions literally overnight.
The larger your business becomes the more of a target you are.
This certainly should lead the cautious among us to understand that putting all of our eggs in Amazon’s basket is flirting with disaster.
Four, Barriers to (re)entry.
It is much harder for a competitor to begin an eBay business, and therefore, your store’s virtual real estate is safer there.
Remember getting a busy signal while trying to log in to the internet? Remember when cellphones plans only allowed us thirty minutes of free talk time and that was all they did? Remember driving without a GPS or backup camera? These things weren’t big deals to us back in the day because they were the norm, but could you imagine getting adjusted to them if they became the norm again?
I believe this idea extends to the seller community on eBay where many potential new sellers are drawn to the greener pastures of Amazon.
Not only is harder to grow a business on eBay, but I’ve noticed that my friends that have left Amazon for one reason or another do not return to eBay. They just cannot bring themselves to go back and manually list, store and ship items again.
When I bring the subject up to them they act like I asked them to reopen their Myspace accounts.
When we couple this with the fact that it is harder in general to build an eBay store to its capacity, we can realize that competition is less likely to creep up on us eBay sellers and even if it does, since its slower in coming, we have more time to see it and to adjust.
Please reply with any thoughts, supports or pushback that you may have. Now at least you can understand that should I disagree with you its just me being the contrarian that I am.
Printed with permission from TheResellerBible.com
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