Being a self-declared motivational blackbelt, one advice I always give to people who feel down is to talk about it and get it off their chest. I’m going to follow my own advice now and tell you about my depressing day.
There are a lot of success stories written in blogs about business. Even most of the failure stories are written on hindsight after the business owner has already succeeded in overcoming the challenges and uses these stories to motivate others not to quit.
If that’s the kind of story you want to hear, then it’s time to bounce off this page. For the next story you’re going to hear is a depressing one. Not a past crisis that I’ve already overcome, but a current one that I’m still struggling with.
I’m Quitting Amazon FBA
A few hours ago, I made the painful decision to shut down my Amazon FBA business.
Yes, I have failed. With an accumulated loss exceeding US$ 30,000 to date and counting!
When I wrote that, I was still convinced that the Amazon FBA business could work. My kitchenware line did make money at least for a few months before spinning back into a loss due to my warehouse provider screwing up my business. And there are many success stories from other people about Amazon FBA as well.
Perhaps it can still work. I’m not so judgemental as to assume that just because something didn’t work for me means that it will not work for other people. But today, after crunching in the latest numbers and reviewing the prices, I decided to call it quits.
The Chinese sellers are killing the market. How do I know that they are from China? Just click on the Seller’s name and scroll down to see their business address.
Chinese sellers have always been known for using price as their primary weapon.
And why not? Even in my short stint as an Amazon seller, I’ve found that sometimes spending on discounts can just be as cost-effective as spending an equivalent amount on advertising.
In fact, while advertising takes time and isn’t guaranteed to generate an ROI, discounting works almost immediately. You will still make a profit because there’s no advertising cost, just less. By being the cheapest seller on the market, you can benefit from the traffic of buyers who sort listings by price.
But there’s also an economic reason for this. Due to the different standards of living, a Chinese seller living in China doesn’t need to earn as much per unit to make it worth his while compared to sellers from high-income countries, such as Singapore (where I’m from), Europe and USA.
Let’s look at the Monthly Earnings of people in these countries (based on CEIC data):
China: US$ 1,393
Singapore: US$ 4,913
Germany: US$ 4,767
USA: US$ 4,427
At a profit of US$ 10/unit, a full-time Chinese seller only needs to sell 140 units/month on Amazon to make US$ 1,400 and earn what is considered an “average” income.
If sellers from Singapore, Germany or USA were to match the Chinese seller on price, and assuming they have similar costs and sell a similar quantity, they will also make the same US$ 1,400.
However, that will only be about 30% of the median income in their country, probably putting them in the bottom 25% of the population.
Thus, it may not be worth their time to compete on price. Yes, they can do white labelling, optimize for Amazon search results, take nice pictures etc. But whatever they can do, the Chinese can do just as well, maybe even better, and definitely cheaper.
10 years ago, or maybe even as recent as 5 years ago, it may have been easier. But since Amazon started aggressively wooing Chinese merchants to sell on its platform in 2012, they have become dominant in this marketplace.
I’ve concluded that I have no real competitive edge against Chinese sellers in this market. Most products are already made in China anyway. It’s time for me to move on.
However, for people in countries that have incomes similar to or lower than China, such as those in Southeast Asia (excluding Singapore and Brunei), the Indian subcontinent and the African continent, the playing field is less uneven.
Even better if these countries have a strong consumer product manufacturing base, so the sellers don’t have to rely on Made in China products to compete against the Chinese.
Chinese merchants are also well-known for their unethical trade practices, such as buying fake reviews.
They are also good at exploiting loopholes in the system. For example, they are known for creating multiple stores selling the same product to flood the category with rafts of SKUs in order to dominate it.
They also use the “Videos for related products” function to upload their videos below your listing, siphoning traffic away from your product, which is something that happened to my product as well.
To fight them, we must work just as hard as them, like creating and managing multiple stores to flood the category with SKUs.
But I didn’t start my Amazon FBA business to work so hard. I started it to generate a passive income so that I can work LESS HARD! This isn’t what I signed up for!
The Last Straw
Today, I found out that my competitors lowered their prices by about 7 – 10% overall. This is despite inflation.
With material, labour and shipping prices all increasing, they should also be forced to increase their prices instead. So, what’s going on?
I believe the Chinese sellers are engaged in a price war with each other and with everyone else. I am just collateral damage.
They are slowly turning Amazon into 淘宝 (Taobao), China’s biggest online shopping platform, where competition is even more cut-throat. It is for this reason I have never thought about venturing into China, despite it being a growth market.
I didn’t start this business to lose money in a price war. Neither was it my objective to work as hard as the Chinese sellers, who may treat this as their full-time business while I see it as a side hustle.
Therefore, I have decided to put this down as a business failure on my track record and move on.
Amazon hurts my Shopify Business as Well
Another reason why this is a depressing day is that my Shopify USA sales have been dropping steadily, and the business fell into loss-making territory for the past 2 months.
The profits generated weren’t enough to cover advertising costs and I have been bleeding cash. So, this has been causing me stress since June 2022 even before the Amazon problem added to my burden.
While there were other issues causing the decline in sales, I had already fixed them one by one. I was optimistic that July will be a turn-around month.
But despite traffic remaining the same, sales have come down, indicating a conversion rate problem.
What I found was that a new wave of Chinese sellers started selling a product like mine on Amazon, again at cut-throat prices. I believe that is why my Shopify sales remain depressed.
According to some research, more than 56% of American consumers prefer to shop online. Out of these, 57% go to Amazon to search for products.
What this means is that they will inevitably compare the prices on my Shopify store against similar ones on Amazon. Thus, only 43% of my market isn’t affected by Chinese Amazon sellers.
The reach of the Chinese Amazon seller extends way beyond Amazon.
My Next Steps
I still have about more than US$ 40,000 worth of kitchenware inventory stuck in the USA. My priority now is to try and recover as much of that investment as I can.
I am going to undercut the Chinese sellers and clear my stocks as quickly as possible to reduce my warehousing costs, which cost me more than US$ 1,000 a month.
Yes, I will lose money on paper.
But if the products don’t sell, I will lose money on the monthly warehousing bill ANYWAY.
So, I might as well sell the stocks at a loss and get back some of my cash, which can be reinvested in other ventures.
Also, I will keep selling my wall decorations product line. These items are small and don’t cost much to store anyway and I still have inventory to clear. It also keeps my Amazon account active.
Who knows? Things may change in the future, and I might still find something else I want to sell on Amazon. Perhaps one day I will write an e-book and sell it on Amazon?
As for my Shopify store, its products aren’t in the same category as what I sell on Amazon, so I won’t be using it to clear my kitchenware stock.
Traffic so far has depended mainly on Search Engine Marketing (SEM), which uses paid ads to generate traffic. In the coming months, I will be focussing my efforts on building up free organic traffic using Search Engine Optimization (SEO).
For a more detailed explanation, you can read my article about SEO vs SEM.
Wait, there’s more Bad News!
I promised that this will be a depressing story, right?
July has been very demoralizing. I lost money in the US market, both on Amazon and on Shopify. But this wasn’t the most frustrating.
You see, it was a terrible month for my Singapore distribution business as well, which is my core business. And it’s never good when your core business is in trouble.
Two of my best-selling products come from Shanghai. But due to China’s zero-COVID policy, the lockdowns in Shanghai caused supply disruptions and both products stocked out in July.
Even my third-best seller made elsewhere was affected as the factory had many critical components and parts that were sourced from China.
As a result, July’s revenue dropped by a whopping 45% as compared to June. Not due to a lack of demand, but to a lack of supply.
My cash inflow dropped a lot due to stockouts. But I still needed cash to place orders with suppliers to avoid future stockouts. No Stock = No Sales = No Cash = No Stock.
Not placing the orders may result in the business going into a dangerous tailspin of doom. Thus, I was fast running out of cash.
Finally, my goods from Shanghai arrived today.
But guess what?
Of all the dozens of shipments I import each year, the Singapore Customs department decided to inspect this one. It happens usually only once or twice a year. The delay prolonged my pain for another 1 to 2 days.
Even the small little things went wrong.
I was low on fuel but there was a long queue at the petrol station.
The lights went off while I was in the shower.
What a day!
But you know what? Days like this are typical in the life of an entrepreneur. I’ve had worse than this.
I don’t like it, nobody does. It sucks to fail.
But you don’t lose when you fail. You lose when you quit. And I am no quitter.
I’ve been through worse sh*t than this, at times when I had far fewer resources. I’ll survive this as well, as I always have.
During downturns like this, I always tell myself:
“Stay Focused and Keep Moving Forward”.
Business is always two steps forward, one step back. Today is one of those “one step back” days.
But that doesn’t mean tomorrow has to be.
So long as I keep moving forward, I will eventually walk another two steps forward and get at least 1 step closer to my destination as a net result.
The other technique I use is perspective. Learn to see long, see wide, and see the bright side.
In the context of the next 30 years that I expect to be in business, is this really a big deal? Or just a small bump?
Furthermore, once I am restocked, I may see a big rebound in August due to pent-up demand. I already have backorders the equivalent of 30% of average monthly revenue waiting to be filled with this Shanghai shipment. So this problem is likely to be transitional.
This is taking a long perspective.
Yes, two of my companies are in trouble. But the third is still doing well, so it’s not all bad news.
This is taking a wide perspective.
Lastly, what’s the good thing about all these problems?
I now know with certainty that Amazon FBA is not the right business for me.
This has also got me thinking, that perhaps I should monetize this blog through advertising or affiliate marketing instead of just treating it as a hobby and an online diary. At least here, price is not a factor as it’s more about reader engagement.
This is looking at the bright side.
I am not a religious man, but I believe everything happens for a reason.
I believe 老天 (Chinese for “Heaven”) has a plan for me. But 老天 is very stingy with advice and doesn’t tell me what I need to do.
Instead, all he does is throw boulders down to block my road, sometimes injuring me in the process. This is to tell me what roads not to take.
But he will never tell me what roads I should take.
I’ll just have to keep trying new roads and see if he throws more boulders down.
[Update 30 Sep 2022]
This is just another of those technical and supply chain issues that happen all the time with the Amazon FBA business. Here’s the story.
My warehouse provider (ShipBob) decided to move my inventory from their Cicero, IL facility to Twin Lakes, WI. I have no problem with that.
But when I try to send inventory by Small Parcel Delivery using UPS (Amazon Partnered Carrier), this is the error message I get.
The problem only happens when I try to ship from Twin Lakes. It works fine when I change the Ship From address to Cicero.
Thus I believe it’s because the Twin Lakes address doesn’t exist in the UPS database. I verified this theory by visiting the UPS website to get a shipping rate. True enough, I couldn’t get a successful hit when I search for this address.
I don’t wish to use ShipBob to ship my products either. They had made a huge mess in measuring my SKU dimensions, and I get grossly overcharged by 10x if I use their shipping. They are unable to re-measure my products at the moment due to the move.
So this is another example of me getting stuck because of problems with two major counterparties: UPS and ShipBob.