Flash in the pan or beacon?

Amazon aggregators are raising large amounts of venture capital to take over third-party retailers that use the US company's Marketplace. But how sustainable is this tactic? Experts are divided.

It was a bombshell success story: E-commerce startup SellerX, founded as recently as 2020, raised €100 million in a funding round in August. Yet the company itself has no product on offer, founder Philipp Triebel even told Handelsblatt that no consumer would ever know SellerX. A remarkable statement in the online retail industry.

But given SellerX's business model, this is understandable. After all, the company buys up other merchants instead of developing its own products. SellerX finds the merchants it acquires on Amazon Marketplace, the US-based e-commerce giant's open commerce forum. This third-party merchant business has been growing for years, with reports suggesting that third-party sellers are already responsible for 60 percent of the total sales value of goods on Amazon. SellerX wants to buy up these often very small companies and equip them with professional marketing, logistics and customer service. The Berlin-based start-up is not alone with its model; Brands United, for example, is competing with them in Germany, and the Berlin Brands Group has been pursuing a similar strategy for years, albeit not as strongly focused on Amazon.

The idea - like so many in the German startup world - originally came from the US. There, Thrasio has already been going on a foray through the Marketplace since 2018, and in 2020 the company achieved unicorn status. The German Thrasio clones are not quite there yet, but funding rounds like SellerX's show that investors see a lot of potential for the business model here as well. Berlin Brands Group received $240 million in April, Stryze Group $100 million in March.

But not all experts are convinced of the model's future viability by a long shot. "That what these companies offer is completely dispensable in my eyes," criticizes Gerrit Heinemann. The e-commerce expert heads the eWeb Research Center at the Niederrhein University of Applied Sciences. In his opinion, the Amazon aggregators are merely selling old wine in new skins: "In the end, they are merely fulfillment service providers, intermediaries that are no longer absolutely necessary in online retail."

"In my eyes, what these companies offer is completely dispensable"

Gerrit Heinemann, eWeb Research Center

According to Heinemann, the new intermediaries are taking advantage of the overwhelm that some small business owners feel in the online business. The offer of the Thrasios of this world may seem appealing: "But all experiences of the last 25 years show: Do it yourself, it's more lucrative," says Heinemann. Only in the case of complex and costly processes such as returns processing can he understand why smaller retailers are happy to outsource this, "if the aggregators do the same".

So it's all just a flash in the pan in a market overheated by cheap money? Not all experts are so critical. "Such industry roll-ups are a very plannable business," says Christian Stummeyer. He, too, has been dealing with online trade for years, is a professor for business informatics and digital commerce at the TH Ingolstadt. "The aggregators buy into existing cash flows, the small merchants in turn get rid of the risk of losing their listing," he says. After all, it is precisely this listing that determines the success of a brand on Amazon. The success of a product depends on how high up it appears in a search. Amazon decides exactly how this listing is awarded. If a small retailer loses a promising position, this can threaten the existence of the company. With a company that bundles many of these listings, the risk of failure is limited.

"Such industry roll-ups are a very predictable business".

Christian Stummeyer, TH Ingolstadt

But the question of positioning exemplifies a problem that Stummeyer also sees: Aggregators are dependent on the retail giant from Seattle. "Amazon could change the rules for prioritizing listings at any time," he warns. Heinemann also sees the dependence on Amazon critically. "The winner is the one who is not dependent on Amazon and its whims," he says. In his opinion, companies cannot hope for particularly much understanding from the corporation. "Amazon is not interested in strong partners," Heinemann observes. Terms are not negotiable, even for large sellers, he says. A traditional advantage of sales groups, namely the stronger negotiating position due to higher volumes, is therefore missing.

Whereby Christian Stummeyer does not expect Amazon to look too critically at the start-ups. "We are not talking about one big one here, but many medium-sized companies that share the business and also compete," he says. He expects the model to take root.