News & Insights
Three Quick Takeaways from Amazon’s Q3
After a difficult start to the year for both the economy and most e-commerce brands, Amazon recently updated investors on its third-quarter earnings and what lies ahead. The global giant shared that even though Amazon Web Services showed some concerning signs of deceleration, their e-commerce division displayed more promising trends. For Amazon sellers with an eye toward the future, we wanted to spotlight the key takeaways that will most likely impact brands utilizing the platform:
#1 Growth is accelerating again
E-commerce sales on the Amazon platform grew an estimated 14 percent compared to last year, showing significant acceleration. However, Year-over-Year (YoY) growth last quarter settled in at a much more modest 4 percent. Now, after a year of slow and decelerating growth, the third-quarter numbers are the first to show a dramatic reacceleration.
We think this should be viewed as a positive sign and an indication that e-commerce is returning to its expected trendline growth of approximately 15 percent per year. What may be even more impressive than a return of meaningful growth is the fact that it is occurring despite the fears of a slowing economy and rising interest rates.
Sellers should be ready to capitalize on this return to normal. Effective optimization efforts, inventory management and impressive customer service will be the difference between the companies that experience similar growth and those that get left behind.
#2 Third-Party (3P) sales still have the edge
As we have noted repeatedly, 3P sales continue to take market share from First-Party (1P) sales on Amazon. Much of this is driven by the fact that Amazon would rather be a marketplace than a retailer. Based on the reports from Amazon, we estimate that 3P sales increased 18 percent YoY in Q3. This slightly outpaced Amazon’s overall 14 percent growth but doubled the 9 percent YoY gain displayed in the previous quarter. Comparatively, 1P sales also saw a reacceleration this quarter to 7 percent YoY, up from the 4 percent decline they experienced in Q2. Currently, we anticipate 3P to continue its trend of becoming the more dominant sales model on the Amazon platform.
If they haven’t already, the remaining 1P brands should give serious consideration to shifting their model toward 3P sales. However, vendors who switch to Seller Central need a plan to do so successfully and be sure they have the internal resources or the right Amazon partner to provide the skills that 3P success demands.
#3 The emphasis on advertising is increasing
The Amazon advertising business grew a hefty 25 percent YoY to reach $9.5 billion in revenue. Amazon ads are now an estimated 6.4 percent of total Gross Merchandise Value. However, ads grew faster than GMV, which means the ad prices are increasing.
As Amazon’s ad business continues to grow and the ads become more expensive, it will require more emphasis on efficiency. Brands will need to be careful not to overspend on unprofitable keywords. However, this explosive growth also means that even more sellers are using Amazon advertising, and it’s becoming challenging for brands to compete on the Amazon platform without an appropriate advertising budget.
Moving ahead, successful Amazon advertising campaigns will require a talented team of people with experience in keyword research, A/B testing and compelling copywriting. Otherwise, you’ll risk spending more for less impact.
Prepare for what’s ahead with Amify
Find out how an experienced team and proven process from Amify can evaluate your brand’s account health, provide daily monitoring, and help your business win on Amazon. Connect with us today for a free consultation or to discuss our full-service Amazon platform management.
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