Bezos Shareholders’ Letter Bites Back On Amazon Marketplace

Amazon's Bezos Shareholders' Letter Bites Back

The Amazon marketplace stands as one of the most successful efforts of the eCommerce operator, and that fact was underscored on Thursday (April 11) by the annual Amazon letter to shareholders from CEO Jeff Bezos – a letter that also apparently served as a rebuke to a recent political call to break up Amazon and other large digital firms.

In the letter, Bezos touted the power of the eCommerce operator’s third-party sellers. In 2018, they accounted for 58 percent of physical gross merchandise sales. As he wrote in the letter, “Third-party sellers are kicking our first-party butt. Badly,” which serves as one of the company’s annual benchmarks – and which follows a call from Sen. Elizabeth Warren, a Democrat from Massachusetts who is running for president, to break up Amazon and other big tech firms, including Google. Her proposal would require the Amazon marketplace to break away from the main company.

Marketplace Sales

The letter comes as earlier this year, Amazon CFO Brian Olsavsky said the company might consider changing the fee structure for third-party sellers as the breakdown of its sales continues to change. During the holiday quarter, Amazon reported that over 50 percent of sales on the platform came from small and medium-size businesses.

The company’s fourth-quarter results demonstrate the importance of marketplace sales and related services for Amazon, underscoring the significance of even those vague statements about pricing changes. Revenue from third-party seller services – such as commissions on sales and fulfillment and shipping fees – jumped 27 percent year over year in the fourth quarter, reaching nearly $13.4 billion, or about 19 percent of Amazon’s total Q4 sales of $72.4 billion.

According to the letter released Thursday from Bezos, that success in marketplace sales comes largely because “we helped independent sellers compete against our first-party business by investing in and offering them the very best selling tools we could imagine and build.” Those tools include Fulfillment by Amazon and the Prime loyalty program, he wrote.

Amazon Go

The Bezos letter also touched on Amazon’s effort to build out its brick-and-mortar retail capacity via its Amazon Go stores, which have cashierless checkout technology. “For many years, we considered how we might serve customers in physical stores, but felt we needed first to invent something that would really delight customers in that environment,” Bezos wrote. “With Amazon Go, we had a clear vision. Get rid of the worst thing about physical retail: checkout lines. No one likes to wait in line. Instead, we imagined a store where you could walk in, pick up what you wanted and leave.”

Indeed, Amazon is testing the Amazon Go concept in a larger store format, signaling another potential threat to rival retailers. That said, while the Amazon Go technology has worked well in a smaller store format, it’s reportedly tougher to pull off in larger spaces that carry more products and have higher ceilings.

“Getting there was hard,” Bezos wrote of the Amazon Go efforts, which have resulted in 10 stores in operation so far. “The reward has been the response from customers, who’ve described the experience of shopping at Amazon Go as ‘magical.”’

Wage Challenge

Bezos also used the letter to share his thoughts on the ongoing debate over the minimum wage – and to throw down another challenge to Amazon rivals.

Last year, the eCommerce operator raised its minimum wage to $15 per hour for U.S. employees, including part-timers and seasonal and temporary workers. That’s more than double the federal minimum wage of $7.25 per hour. “Today, I challenge our top retail competitors (you know who you are!) to match our employee benefits and our $15 minimum wage. Do it! Better yet, go to $16 and throw the gauntlet back at us. It’s a kind of competition that will benefit everyone,” Bezos wrote.

The issues described in the annual Bezos letter to shareholders certainly will not fade anytime soon, especially as the eCommerce operator’s marketplace sales continue to increase.