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SPACs. Crypto. NFTs. IPOs. It’s time to add yet another item to the list of hot business trends from 2021 that have all but died out through the first nine months of 2022: Amazon aggregators.
The business practice of acquiring companies who complete most of their business as third-party Amazon sellers and rolling them up into one big house rode Amazon’s soaring e-commerce coattails last year. Now, it seems these aggregators may have bought off more than they can chew.
Interested investors backed these start-ups to the tune of $12 billion last year, hoping to help aggregators snap up more and more sellers, and, theoretically, achieve efficiencies of scale in inventory management and marketing spending. But the e-commerce landscape has completely changed. Brick-and-mortar retail growth outpaced e-commerce growth in 2021 for the first time since the inception of online shopping, and net product sales on Amazon decreased from $58 million in Q2 2021 to $56 million in Q2 this year — “Everyone has bought their bread baking machines,” Riccardo Bruni, co-founder of the aggregator Heroes, told the Financial Times.
Making matters worse is the increasing costs of selling through Amazon. The e-commerce gatekeeper has hiked seller fees by more than 30% since 2020, and instituted a 5% fuel surcharge on deliveries fulfilled by its in-house logistics network. The cumulative effect has been to dampen the mood on all sides of the aggregator equation:
- Aggregators this year have secured only a touch over $2 billion overall, down from last year’s $12 billion, the bulk of which came in the first three months of the year — before Russia invaded Ukraine, rapid inflation, and the massive tech stock sell-off. “The private market almost shut down,” Bruni told the FT. “For a certain period of time access to capital became impossible.”
- With little funding, aggregators have barely been able to acquire new sellers this year — industry sources tell the FT that fewer than ten of the several dozen largest aggregators are continuing to acquire new sellers. Last year, aggregators were willing to take on debt — at times with 18% interest rates — just to complete acquisitions, some of which were completed at multiples around 7-times higher than sellers’ adjusted EBITDA.
Aggregation Consolidation: One possible salvation for beleaguered aggregators, according to FT sources: consolidation. That’s right the M&A aggregators may wind up aggregating themselves. Those efficiencies of scale must be out there, somewhere.