As the global economy struggled under the shadow of the pandemic, e-commerce emerged as a lifeline for many businesses. Amazon's Fulfillment by Amazon (FBA) program became particularly instrumental in helping third-party sellers achieve business growth. However, with the pandemic gradually receding and the physical economy recovering, what lies ahead for the once-thriving FBA business model? How will the aggregators who invested heavily in acquiring FBA brands adapt to new market challenges?
What Are Amazon FBA Aggregators?
Amazon FBA aggregators, also known as FBA brand acquirers, are companies specializing in purchasing FBA businesses operating on Amazon's platform. These aggregators typically possess substantial financial resources and professional operational teams. They acquire multiple FBA brands, consolidate resources, optimize operations, and achieve economies of scale for greater profitability. Essentially, they serve as "Amazon brand consolidators," bringing together disparate FBA businesses under unified management.
The business model of FBA aggregators follows this logic:
- Brand acquisition: Identifying FBA brands with growth potential, profitability, and positive reputation.
- Resource consolidation: Integrating acquired brands into a unified operational system with shared technology, marketing, and supply chain resources.
- Operational optimization: Enhancing product quality, optimizing listings, improving advertising efficiency, and reducing operational costs through refined management.
- Scale expansion: Leveraging size advantages to explore new market channels and product lines for rapid business growth.
- Value enhancement: Increasing brand value through brand building and operational improvements to achieve higher investment returns.
This model provides original FBA brand owners with an exit strategy and wealth appreciation opportunity, while offering aggregators a fast track into e-commerce and a way to build diversified brand portfolios.
Pandemic Impact on E-Commerce and Amazon
The pandemic accelerated global e-commerce development. According to UNCTAD data, the percentage of internet users shopping online globally increased from 53% in 2019 to 60% in 2020-2021. This shift was more pronounced in developing countries, with some nations seeing their online shopper numbers double.
Digital Commerce 360 reported that U.S. consumer spending on e-commerce grew by $218.53 billion in 2020-2021, creating significant opportunities for Amazon sellers and aggregators. Amazon expanded its operations, adding 85 new countries and constructing more warehouses to meet surging online demand.
Amazon's 2021 Small Business Empowerment Report highlighted its support for third-party sellers in improving their businesses. Even during a disappointing Q1 2022 earnings period, third-party seller services maintained 7% year-over-year growth, demonstrating the platform's continued potential.
FBA Aggregators During the Pandemic
With the surge in online orders, many FBA businesses became more profitable. However, some brand owners recognized their limitations in scaling quickly, while others sought to exit the operational complexities. Attractive acquisition offers from aggregators prompted many Amazon sellers to cash out.
Between 2020-2021, numerous FBA aggregators emerged and actively sought funding, securing millions from institutional investors to acquire more brands. For instance, Razor Group raised $125 million while Branded secured $150 million. However, since early 2022, aggregator funding has plateaued, suggesting either cooling investor enthusiasm or strategic adjustments.
Current State of FBA Aggregator Acquisitions
Despite the pandemic's waning impact, aggregators remain optimistic about FBA acquisitions, believing in e-commerce's long-term growth potential. Razor Group continues acquiring leading e-commerce businesses globally, while Flummox recently secured its first funding round for portfolio expansion. Quiet Light Brokerage reported April 2022 as its second-best month ever for FBA transactions.
However, some aggregators face headwinds. Boopos, a mergers and acquisitions lending platform, noted increased activity from smaller buyers as aggregators became less active. Forum Brands observed more selective acquisition strategies compared to 2021's accelerated growth.
Marketplace Pulse reported some aggregators pausing or reducing acquisitions, though this doesn't necessarily reflect pessimism about FBA success. Some are simply recalibrating strategies—Branded now focuses more on product launches than acquisitions, while The Mothership has become more selective about quality targets.
Key Challenges for FBA Aggregators
Aggregators face several critical challenges when evaluating acquisition targets:
- Identifying suitable brands: Requires thorough evaluation of financial performance, growth potential, transferability, and portfolio fit.
- Performance forecasting: Many brands saw 50-100% growth in 2021 but may now be correcting by 20%, making future projections difficult.
- General business challenges: Inflation, supply chain issues, and Amazon competition affect profitability.
- Post-acquisition management: Even established brands present operational challenges, prompting some aggregators to retain founders longer for smoother transitions.
The Omnichannel Future
While physical retail rebounds, e-commerce maintains strong momentum due to convenience. The future likely favors omnichannel strategies combining online and offline channels. FBA aggregators, with their resources and expertise, are well-positioned to manage such hybrid arrangements.
Conclusion
Amazon FBA aggregators experienced rapid pandemic-driven growth but now face evolving market conditions. To remain competitive, they must adapt strategies emphasizing brand development, operational excellence, and omnichannel approaches. Their future success depends on navigating these challenges while identifying new growth opportunities in this dynamic sector.