Amazon.com Inc.’s online marketplace is thriving, with marketplace sellers accounting for 58% of gross merchandise sales on Amazon, a nine percentage point increase from five years earlier, notes Amazon CEO Jeff Bezos in his annual letter to shareholders.
“Third-party sellers are kicking our first-party butt. Badly,” he wrote in the letter published Thursday.
That growth has come at a time when Amazon’s first-party sales are growing rapidly; the retailer generated $141.92 billion in product sales in 2018, up 19.7% from $118.57 billion in 2017. Product sales account for goods sold by Amazon and exclude revenue from service sales, such as Amazon’s computer power business (AWS) and commissions paid by Amazon marketplace sellers.
Bezos drew a stark comparison between gross merchandise sales on Amazon’s marketplace—which between 1999 and 2018 have grown from $100 million to $160 billion, a 52% compound annual growth rate—and gross merchandise sales on eBay Inc., which during the same period have grown from $2.8 billion to $95 billion, a 20% compound rate.
“Why did independent sellers do so much better selling on Amazon than they did on eBay?” Bezos asks. “And why were independent sellers able to grow so much faster than Amazon’s own highly organized first-party sales organization? There isn’t one answer, but we do know one extremely important part of the answer: 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. There are many such tools, including tools that help sellers manage inventory, process payments, track shipments, create reports, and sell across borders–and we’re inventing more every year.”
Pointing to services such as Fulfillment by Amazon and the retail giant’s Prime membership program, Bezos argues that Amazon’s growth has benefited third-party sellers. The framing is a response to Sen. Elizabeth Warren, a presidential candidate, who has mapped out a detailed plan for separating Amazon’s marketplace from the rest of its business because she said it “crushes” small businesses.
Pushing retailers to boost their pay
Bezos, who routinely uses the letter to outline his long-term strategy, also challenged rival retailers to raise their minimum wage to $16 an hour.
“Today I challenge our top retail competitors (you know who you are!) to match our employee benefits and our $15 minimum wage,” Bezos said. “Do it! Better yet, go to $16 and throw the gauntlet back at us. It’s a kind of competition that will benefit everyone.”
The company in October pledged to pay all of its warehouse workers at least $15 an hour, after presidential hopefuls Warren and Bernie Sanders held out Amazon workers on food stamps as an example of the need for living-wage protections.
This was Bezos’ first shareholder letter since his personal affairs became tabloid fodder. The CEO in January announced his divorce from his wife of 25 years, MacKenzie Bezos, and the couple last week announced a settlement that leaves Bezos with 75% of their stock in the company. He remains Amazon’s biggest shareholder.
Bezos made no direct mention of the divorce in his annual letter, maintaining distance between the company’s operations and his personal life.
Bezos includes his 1997 shareholder letter to remind investors of his ability to capitalize on how the internet would change the nature of shopping. His strategy and outlook have developed a cultlike following similar to that of Warren Buffett, whose annual letters to Berkshire Hathaway Inc. investors are must-reads for those looking to understand the economy and Buffett’s investment strategy.
Bloomberg contributed to this report.Favorite