As e-commerce continues to grow and take a larger foothold in the way people shop, the need for online vendors of all kinds grows with it. The demand for goods available on accessible online platforms is constantly increasing. Online sellers should not limit their sales to just one Amazon sales channel. The most successful companies are ones that differentiate their reach by diversifying their e-commerce portfolio. At the same time, e-commerce sellers need to consider the additional costs and effort that this will take, but the hard work can turn your company from a fledgling start-up to a highly valued company.
Larger Portfolios Bring Revenue (and Cash!)
It is not only the online vendors making the most of the growth in e-commerce; online market places are finding greater sources of revenue and market share versus Amazon. Over the past year, Walmart has pushed heavily towards expanding its e-commerce platform and sales. To counter Amazon Prime, Walmart has rolled out cheaply priced good with free two-day shipping and seller programs…and it’s working. In their previous earning report, the company stated that e-commerce sales rose by 37%. Not only are big retailers growing, but general markets as well. Last Christmas, the U.S. consumers spent $1 trillion in goods (in one quarter) for the first time in history. The Seller Accountant team did an aggregate study to find e-commerce trends using data from our clients. We found that the average seller that has diversified their portfolio had an average Net Sales $1.4 million higher than a strictly amazon seller.
As globalization expands and new economies gain traction, areas like Africa and India are becoming market places that are continuing to buy more consumer goods. However, Amazon limits a seller’s audience by geography and takes up half of the goods sold on the website. Sellers should look into expanding into other online marketplaces like WooCommerce, Shopify, etc. This will help online vendors to reach across a greater amount of geographical lines. A larger online portfolio will give a greater amount of options to the willing consumer.
Diverse Portfolios Bring Value
With a large and a brand name, online vendors can turn their start-up into a valuable asset. We have found that there is a demand for e-commerce stores that not only make money but can be distinguished between other competitors. Online Stores should heavily invest in online websites and brand recognition. Online vendors cannot sit on their laurels and only invest their profits into an Amazon store. Besides, Amazon consistently takes around a third of a seller’s gross profit, leaving online vendors with an economic ceiling and a limitation (e.g. control of cash) on future goals. Companies that are successful in creating a diverse portfolio can find Private Equity firms willing to give a 10x multiple from their EBITDA. For example, if an online seller’s EBITDA is $2.5 million, a PE firm could be willing to pay $25 million for a simple, profitable online store. Obviously, all of these things are easier said than done. Successful brand owner’s are required to invest large amount of blood, sweat, time, and money. However, the hard work will pay when your investment turns into cash.
Conclusion
E-commerce is growing each year. This means that sellers have a unique opportunity to grow with it. With the increasing economic pressure, this is the perfect time for online sellers to begin focusing on ways to increase the value of their business instead of their profits. Sellers that will be able to turn this negative into a positive will be able to become some of the top vendors in the industry. Stay tuned for upcoming blogs that will expand on this issue and even tips to make sure your company is accurately representing these issues on your books. If you need any help on any issues regarding the trade war, contact us for a free consultation!