Bloomberg recently wrote an article about the lollipop hustlers and resellers on amazon costing Spangler Candy millions of dollars. Spangler Candy sells the infamous Dum Dums, and The TLDR is that people use Sam’s Club to price-arbitrage and undercut the officially Spangler Candy listing on Amazon.
We see the headlines for concert tickets and sneakers, but it is odd to see the arbitrage of lollipops hit the headlines, especially quantifying the millions of dollars impacted. This is a similar pattern that happens all the time; we have seen it happen with Dyson Hair Wraps, Tampons, and Cheese Its. So, if it keeps happening and is costing brands millions, then why has it not been stopped?
How to Ungate & Make Money on Amazon
Amazon and brands are trying to stop it through gating, which puts selling restrictions on certain categories, subcategories, and brands. This is intended to protect a new user from signing up for Fulfillment by Amazon (FBA) accounts and selling any item on Amazon. Unfortunately, ungating specific items and categories are straightforward with many tutorials.
These resellers and arbitrageurs are not working alone but working as a community providing guides, best practices, and troubleshooting together. If individuals ungated themselves for Dum Dums, they would likely share the opportunity and process with the larger group. This presents a problem for brands like Spangler, who was able to remove some of the initial Amazon Sellers, but it quickly became unscalable.
“There’s an entire cottage industry encouraging people to start their own business selling on Amazon and drop-shipping from other retailers.” — Mitchell Owens, e-commerce lead at Spangler Candy
They attempted calling and reporting the problem to Amazon but quickly realized it was a waste of time. These Amazon Sellers kept popping up, as they were exploiting the profits and majoring roughly $6 a sale with no liability. It was pure profit; they never touched the merchandise by “drop-shipping” directly from Sam’s Club and had no risk because they could return any unsold items.
Arbitrageurs and Amazon Sellers are constantly scouring for good deals: cook groups, scraping the web, or using tools like Brickseek and SellerAmp. Brickseek and SellerAmp show online and in-store price anomalies, clearance items, and markdown items.
Using these new sourced discounted items, Amazon Sellers calculate their profits and attempt to become or undercut the Buy Box on Amazon.
Analytic tools, like Keepa, show the price fluctuation and the ideal listing price. Once they determine the price and list their product, they source new products and wait for customers to purchase their option. Amazon Sellers sell a wide range of items and will sell anything that is ungated to them and can turn an easy profit.
Why do Spangler Candy and other Brands Care?
It costs their brands millions of dollars and can jeopardize the customer experience.
- Undercutting & Lowering the Profitability per Sale: these Amazon Sellers are buying items that Spangler sold at a lower margin to Sam’s Club and other wholesalers. Then, they are undercutting the Spangler Candy sales price on Amazon to incentive buyers to choose their offering. This cycle is significantly impacting the profitability of their customers since they will recognize wholesale pricing for revenue instead of DTC prices, which have a higher a price and margin.
- Hijacking the Consumer Experience: customers ordering on Amazon will not always be aware of who is fulfilling their items. If the package comes damaged or does not meet the standard, they will complain to Amazon and potentially to the brand. The customer may be upset, and their anger will likely be redirected to Spangler and the brand since they most likely believe they handled the fulfillment. Managing the unboxing experience and potentially support issues is essential for cultivating a strong lifetime value and brand affinity.
- Skewing their Data: since fewer people are buying Dum Dums through Spangler’s option on Amazon, they might think there is not a lot of demand and allocate more resources to wholesale because the increase in purchases. The data would reflect this business; however, the data is being skewed by these arbitrageurs and resellers. It is essential for a successful business to better understand its customers and their intentions.
Unfortunately, this is a persistent and growing problem for brands, as more people are learning about the opportunities and profits from reselling items on Amazon, Walmart, and any marketplace. For example, look at Nike, which famously refuses to sell on Amazon. Every Nike item sold on Amazon is through a reseller and impacts their profitability, creating customer support nightmares and straining their understanding of their customers.
If there is a dollar to be made, someone will expose it. Cook groups and reseller communities are getting better at sourcing opportunities and deals. They will resell anything from concert tickets to toilet paper because some make thousands of dollars a month. With these profits, more individuals will jump in, which is reflected by “Amazon dropshipping” Google searches in June, jumping 50% compared to last year, according to BuzzSumo.
With the influx of success and new resellers, brands are beginning to understand resellers and their enormous impact on their business. We have experienced the expensive and wrong decisions from using data skewed by resellers and bad actors at some of the largest retailers in the world (e.g., Nike, Gucci, and Apple). We do not want others to go through the same struggle; thus, we created BotNot. BotNot is a digital identity platform that allows businesses to better understand their customers, and provide unique, automated recommendations to reduce the time spent deciphering data. We have helped many brands combat resellers and enhance their business by better understanding their customers, which has yielded improved inventory forecasting, customer lifetime value, and profitability.