Selling Through Sears Marketplace

In most of my posts I’ve talked about selling on Amazon or EBay, since they’re by far the largest online marketplaces available.  Today I’m going to talk about my experiences selling through the Sears Marketplace.

Sears has modeled their program on Amazon’s, which is what made me decide to try it out.  Most importantly to me, they have a ‘Fulfillment By Sears’ program similar to Amazon’s ‘Fulfillment By Amazon’, where third party retailers send their merchandise to a Sears warehouse, and Sears directly handles shipping products to end customers.  The Sears marketplace has significant traffic, and Sears itself certainly has the resources to implement a program similar to Amazon’s.  Selling on Sears sounded like a good opportunity.

Unfortunately, even though Sears’ program is similar to Amazon’s, their execution is not.

When I need to communicate with Amazon I open a help ticket and send them a note with whatever I need to talk to them about.  Usually in much less than a day, but always within a day, they reply.  If they’re not able to answer my question immediately, they send me a note about once every 2 or 3 days to let me know they’re still working on the problem.  When they resolve the issue they close the ticket, but I can easily re-open the ticket if the problem isn’t completely resolved on the Amazon seller portal.

With Sears, I open a help ticket and send them a note.  Other than an auto-response that is sent immediately, there is no specific time frame in which they will answer, not even an acknowledgement that they’re aware of the ticket.  I’ve waited up to two weeks before pinging them just to see if there is any length of time after which they will respond, even if it’s just an acknowledgement, but it doesn’t appear there is any such maximum time. 

After filling out the initial help ticket on the Sears seller portal, all future communication on the help ticket is through email (responding to their auto-responder email or a subsequent email from them), not through the Sears seller portal.  Unfortunately, they tend to close help tickets even if the issue isn’t actually resolved.  If I reply to an email from them on a ticket after they’ve closed it, the email is auto-rejected, with instructions to open a new ticket.  A single problem can easily end up with quite a few help tickets.

In terms of how your products are presented to the customer when there are multiple third party retailers, Amazon awards one retailer the ‘Buy Box’ on the product details page (giving them a huge advantage), and all other retailers are listed in price order (low to high) on a separate page.  Amazon does make it conspicuous that there are other retailers with a higher price offering the same product.  Even though most sales probably go to the seller with the lowest price, some buyers do go with a retailer asking a slightly higher price if their seller feedback rating is significantly better.

On the Sears marketplace, it is difficult to find any retailer other than the one with the lowest price.  When I first started selling on Sears it took me quite a while to find some of my products.  I understand making the lowest priced retailer more conspicuous, but Sears has taken it too far.  There are other factors that are also important to customers, and offers from other retailers should be more obvious.

My biggest disappointment with Sears though was their Fulfillment By Sears service.  With Amazon’s FBA, I’ve had remarkably little trouble with merchandise ‘disappearing’ (though sometimes 1 item from a large shipment ends up being ’unavailable for measurement’ indefinitely, literally forever).  With Sears, my first shipment to their warehouse was 10 watches.  They acknowledged receiving all 10, but only 7 showed up in my inventory.  30% of my inventory simply disappeared.  I filed a help ticket immediately of course, but even now, about 6 weeks later, they are still trying to determine where my missing inventory is.  As you can probably guess from my comments above, their communication with me on this has been problematic.  They never voluntarily contact me about this issue, I’ve had to keep opening new tickets to ask for status, as they keep marking each ticket as ‘closed’ even though they haven’t located any of the missing merchandise.

Sears obviously wants to copy Amazon’s success in working with third party retailers, and they’re certainly capable of it.  It’s unfortunate their execution is nothing like Amazon’s.  If things improve in working with Sears I’ll create a new post with the good news.

Inviting Competition from Amazon

I often read people commenting that when you sell on Amazon you’re inviting competition from Amazon itself.  This is because Amazon knows the sales volume of all products sold on its site, so if they see a third party retailer with a well-selling item Amazon can then sell the item itself.

There’s no doubt this can and probably does happen, but I think it’s a misguided concern for several reasons.

First is that it assumes Amazon won’t be aware of the product as long as no third party retailer sells it on Amazon.  Amazon is a huge company, with 10’s of billion dollars in sales every year.  They actively seek out new products to sell to keep growing.  If there’s a product with a large total volume Amazon probably knows about it, and even if they don’t know about it yet they will almost certainly find it eventually.  Basing your success on the hope Amazon never discovers a high volume, high profit margin product line that anyone can retail is not a great strategy.

It also assumes that if you don’t sell it on Amazon, no other third party retailer will either.  Amazon will see the sales volume no matter who sells the product, and if it’s a good product to sell you can count on some third party retailer eventually selling it on Amazon.

But my main objection to this argument that selling on Amazon is self-defeating is that it bases success on the hope of permanent artificial scarcity.  Let me give an example of what I mean.  If you’re the only retailer selling bread within easy driving distance of a town you can sell a lot of bread at a very high price, and make a good living doing it.  But are you providing a high value service to your customers? 

Certainly having bread is better than not having bread, and you’re enabling your customers to have bread without driving a long distance, so in that sense it’s a high value service.  But it’s only high value because no other retailer happens to be serving the area.  There’s no shortage of bread, and there are no barriers to another retailer selling bread in the area, it just so happens that no other retailer is selling bread in the area – yet.  As soon as another retailer within easy driving distance starts selling bread your business model doesn’t work – prices go down, your profits go down, and eventually you’re driven out of business. 

Not selling on Amazon because of the potential for competition is like spending your life looking for the largest city you can find that doesn’t have a retailer within easy driving distance that sells bread.  Your continued success in any particular town is always tenuous at best.

Basing your business’ success on artificial scarcity is not a good idea.  Instead you should find a way to add value for your customers, to offer them something that large retailers don’t and aren’t going to offer them.  If it’s easy and profitable for large retailers to provide exactly the same products and services you do you should expect that eventually they will do so.  Fortunately, what works well for small retailers isn’t a particularly good fit for large retailers, so there are lots of opportunities for you to thrive.

Record Keeping (Part 3)

Inventory

You must keep track of what you have in inventory.  That’s the only way you know what to order and when, and it’s also necessary when doing your taxes.

If you use a fulfillment service, most likely they keep track of what you have in inventory and you just need to download the report, though you may still want to keep track of it yourself independently to make sure your inventory isn’t simply ‘disappearing’ in the fulfillment center without actually being sold.  If you don’t use a fulfillment service, you need to keep a spreadsheet with how much you have of each item.  This includes decrementing each item count when you ship orders out, and incrementing each item count when you receive a shipment from the manufacturer.

As you can imagine, if you stock several thousand items and you’re shipping hundreds of items every day, this will consume a great deal of your time.  I’ll mention again that, as with any mechanical step in running your business, there are service providers that can help you automate the process and save you a lot of time, but they all cost money.

Business Expenses

You must keep an itemized list of all expenses so you can accurately do your taxes.  Many people use QuickBooks to keep this information. 

I’ve never used QuickBooks, I started by keeping the information in another Excel spreadsheet and I still do it that way.  I also wrote a small program to go through the spreadsheet and extract everything I need to do my taxes, and generate three useful reports:

• Profit and Loss
• Sources and Uses of Capital
• Balance Sheet

My accountant tells me my program essentially does a very small subset of what QuickBooks does, just the parts I need, but without the nice graphical user interface.

Again, you don’t have to be able to write a program to do these things.  Initially you can do it by hand, and when it becomes burdensome you can buy and learn how to use QuickBooks or some other accounting program.

The information I keep for each expense includes:

• Amount of the expense
• Type of expense (eg, inventory, tax, office supplies, etc.)
• To whom it was paid

If you don’t have an accounting background (I don’t), I recommend reading an introductory accounting book, something like ‘Accounting for Dummies’ is fine.

Separating Business and Personal Expenses

This is another thing that you absolutely must do from the beginning, because if you don’t there’s no way to accurately get the data you need for taxes later on.

Be certain that you can determine what expenses were for your business.  For example, I have credit cards that I use only for my business expenses, and other credit cards that I use only for personal purchases.  I’ve never mixed the two.  That doesn’t necessarily mean you have to have cards issued under your business name, though you can.  But you can also simply choose which existing credit cards are going to be used for business expenses and start using them for that exclusive purchase.  Just make sure you stop using them for personal use and pay off all charges before you start using them for business expenses.

You should also have a separate bank account for your business.  Pay all of your business-use credit cards and other expenses out of the business bank account.  Have your deposits from online sales go to your business bank account.  If you decide to lend money to your business, for example to buy more inventory and ramp up faster, write a check from your personal account and deposit it into your business account.  That way there will be a clear delineation of what money belongs to you and what money belongs to your company, and where the money in your business account came from.

Record Keeping (Part 2)

Continuing the topic of record keeping from a couple of posts ago, this post deals with order information, both orders I place with manufacturers, and orders I receive from customers.

I maintain an Excel spreadsheet with information on orders I place with manufacturers to re-stock my inventory.  For each order it contains:

• Quantity of each item ordered
• Wholesale price of each item
• Amazon ASIN of each item
• Manufacturer’s product name and product number
• How I paid for it (check, credit card, vendor credit, etc.)
• Total cost of the order, including shipping, which I often estimate based on previous orders
• Date of order
• Date of receipt of order
• Number of each item received

The benefits of maintaining this information are:

• Knowing what orders are outstanding, so you don’t accidentally re-order
• Knowing what is currently back-ordered
• Verifying what was ordered was received
• Verifying the manufacturer charged the correct amount
• Easy access to information needed to correctly update the product listing with quantity, or to create a shipment to the fulfillment center
• Keeping track of how much you owe for products you’ve ordered but not yet paid for
• Knowing the typical order fulfillment time for each manufacturer, so you can time your re-orders appropriately

For customer orders, the information I maintain is: 

• Quantity of each item ordered
• Price for each item
• Shipping cost
• Amount customer paid
• Amount refunded to customer (if any)
• Items and quantities shipped
• Date of order
• Date of shipping
• Tracking numbers
• Name and address of customer
• Name and address of recipient

Currently, you as a retailer have to pay sales tax on sales to residents in your state, but not on sales to residents of other states.  This means you have to know how much of your sales are to residents of your state, so you should make sure the format of your customer orders makes extracting this information easy.  If you’re selling on Amazon, Amazon provides a report that gives you this information for each order (ie, it gives you the state, and the amount of the purchase, for each order).  So calculating it is easy, though it can be tedious if you have a large number of orders.  I wrote a simple program to go through the text file and calculate the sales tax information for me.  I’m sure Excel can do it, so you don’t have to learn how to program, but you probably do want to learn how to use Excel very well.

I said ‘currently’ above because this is likely to change soon.  Rather than only paying sales tax on sales to residents of your state, it’s likely you’ll need to pay sales tax to each state on sales to residents of that state.  Exactly what the requirements will be is not yet known.  Hopefully it won’t be too onerous.  There are literally thousands of sales tax districts in the United States (each state, county, city, school, public utility, etc. can charge a sales tax), so streamlining this will be essential.

Amazon FBA Changes (March 2012)

The last post was part 1 of “Record Keeping”. I’ll continue with part 2 next time, I wanted to spend some time this post talking about recent changes to Amazon’s “Fulfillment By Amazon” (FBA) program. There have been two changes recently, one very good and one not so good. Let’s talk about the good one first.
FBA initiated a “Label Service”. Some inventory needs to be labeled before it can be sold through FBA. Usually this is because there’s more than one product in the Amazon system with the same UPC, so they need the seller to label the products with the correct ASIN so that FBA knows which it is. Until now, the seller had to label the products himself. If you’ve ever done this, you know that it can be quite time consuming. However, for a fee (currently $0.20 per item) you can send your items requiring labeling to the FBA fulfillment center, and they’ll label it for you. That’s a real time saver, and something you should look into.
The second recent change to FBA is where your inventory is sent. When I started using FBA years ago, all inventory for a single ASIN (Amazon equivalent of a UPC) was always sent to a single fulfillment center, and most (but not all) ASINs were sent to the same fulfillment center. Then, Amazon changed it so that, except in special cases, all of a seller’s inventory would go to a single fulfillment center. This was a big help, because splitting up shipments from a manufacturer so they can go to multiple fulfillment centers based on ASIN took a lot of time. Unfortunately, FBA’s latest change goes in the opposite direction.
Now, multiple items for a single ASIN can be required to be sent to multiple fulfillment centers. This is very bad, especially for small retailers. Not only does it take a lot of time to split up a shipment from a manufacturer to send it to several fulfillment centers, it makes the shipping cost to the Amazon fulfillment centers extremely expensive.
There are two ways to avoid this problem. The first is that if you send merchandise in case packs, Amazon (currently at least) won’t make you split up case packs. The second is to sign up with Amazon to have all items for a single ASIN go to a single fulfillment center, for an additional per-item fee.
These two methods will help if you’re sending relatively large quantities, but they won’t help if you’re sending very small quantities, like when you’re testing out new products and don’t want to spend a lot of money on products that may not sell well.
I believe FBA doesn’t want to handle merchandise unless it’s high volume. This is understandable from an operations perspective, but I have to believe it’s going to negatively affect small sellers. One of the best values of using FBA is that it frees you up as a seller from having to handle individual orders. But smaller sellers typically carry a lot of products that aren’t high volume, because the margins on high volume products are small or negative for a small seller. But you don’t want to carry a lot of inventory for a slow-moving ASIN, because that’s not an efficient use of money. And if you try to carry a small amount of inventory via FBA to make efficient use of your money, the shipping costs to the Amazon Fulfillment center could be prohibitive because they’re being split up among multiple fulfillment centers. This means smaller sellers will have to handle more of their orders personally, instead of using FBA, and that will be even more time consuming.
FBA sent out a seller survey recently that asks, among other things, about processes sellers use when shipping products to Amazon fulfillment centers. It did cover the negative effects this recent change in FBA requirements will have on sellers. Hopefully from the feedback they receive they’ll reconsider this recent change.

Record Keeping (Part 1)

This is probably not the topic you’ve been eagerly waiting to read, but good record keeping is essential.  You can’t run your business efficiently, or keep in compliance with tax laws, if you don’t keep complete and accurate records.  You need to keep good records from the very beginning.  Any time you save up front by not keeping good records will cost you much more time later on when you need the data and there’s no way to generate it.

This first post deals with product information.

I maintain a Microsoft Excel spreadsheet with standard information on every product I carry.  The information I keep includes:

• Official manufacturer’s product name and product number
• The product’s Universal Product Code (UPC)
• The Amazon-assigned ASIN (essentially an Amazon version of the UPC)
• The Amazon-assigned FNSKU (similar to the ASIN)
• Product dimensions
• Product weight
• Unit wholesale cost, including shipping charges from the manufacturer to me
• Shipping cost to a customer (this is an average, since shipping costs depend on distance)
• Break-even sales cost (calculated from the above and Amazon’s fees)
• Minimum Advertised Price, if any.  Some manufacturers don’t permit retailers to advertise their products for less than a certain price to protect everyone’s profit margins.  To be an honest retailer and comply with the manufacturer’s requirements, it helps a lot to keep this information where I’ll see it every time I re-stock the item.

The benefits of maintaining this information are:

• Ability to accurately re-order inventory.  Many manufacturers have multiple variations of a product, you need to get exactly the item described on the product page.
• Ability to match a product to the correct Amazon listing, so you send customers the correct item they buy
• Ability to correctly label your products.  This is for third party fulfillment services.  You frequently have to label your products before sending them to a fulfillment center, this provides a way to match labels to products.
• Knowing that the manufacturer charged you the correct price.  I’ve only very rarely had problems with the manufacturer charging the wrong price, but it does happen.
• Knowing what you have to charge to make a profit.  Having this information easily available is convenient when you want to know if another retailer’s price is less than what you have to charge to make a profit.

It does take time to enter all this information for every product you start carrying, but it will save you a lot more time when preparing your products for shipment, either to the fulfillment center or to individual customers.

Planning Your Company’s Growth (Part 2)

In Part 1 we talked about why your company isn’t going to ‘just grow’ on its own, and that long term healthy growth requires constantly searching for ways to make your business more efficient.  In Part 2 we’ll talk about how to actually do that.

In my case, I have an engineering background, so to me becoming more efficient with my time generally means writing software to automate some task that I currently do manually that consumes a lot of my time, or that I can’t do enough of because I don’t have the time.  Eg., writing software to automatically update the prices of my products throughout the day to implement my pricing strategies.  Before writing that software, I was updating my prices manually.  It took a lot of the time I could afford to spend on my business and, since I could do it at most once per day (and often not even every day), it wasn’t very effective.  Once I finished writing that software it freed up a lot of time, which I spent looking for additional products to sell, and it allowed me to use some novel pricing strategies that noticeably improved my profit margin.

It isn’t necessary to be an engineer to become more efficient though.  E.g., there are third party service providers that will update your prices for you throughout the day – I could have just chosen to use one of them.  They do cost money and I believe my pricing strategies give me an advantage, but I could have gotten most of the benefit without writing any of my own software.

Money is a different story, though.  Think about how much money you’re using to run your business (mostly for maintaining inventory, unless you have employees) and how much profit you’re making per year.  If you need to double the value of your inventory to double your annual earnings the money to pay for that inventory has to come from somewhere – your savings or company profit being the most likely sources.  If you don’t have savings to spend on more inventory you have to use profit from your business to grow your business any further.  Using profit from your business to grow your business means paying yourself less. 

Given how much your business makes and how much you have to pay yourself, you can calculate how long it will take you to generate enough cash to double the size of your inventory.  Most likely that’s longer than you want to wait.  Are you stuck, forced to wait it out?  No, you can find a way to generate more profit with the same amount of capital.  Eg., you can change the products you carry so that you get a larger gross profit margin.  Or you can sell products with a higher turnover.

I’m not trying to tell you specifically what you need to do to become more efficient – every business is unique, and what specifically you need to do will change over time.  I am trying to tell you that you need to:

1. Understand every aspect of your business in detail – this usually means measuring the amount of time spent on each task, measuring the annual return on capital of every product you carry, measuring pretty much everything about your business that consumes any resource (time, money, space, etc.)
2. Decide what aspects of your business need to improve to double the size of your annual profit and by how much they need to improve – be specific
3. Choose one or, at most, two aspects of your business at a time to actively pursue ways to improve
4. Dedicate a couple of contiguous, uninterrupted hours every week to thinking about specific ways you can change your business to meet your improvement objectives
5. Once you’ve settled on a way to meet your objectives, implement the changes you identified, measuring the results to make sure these aspects of your business will no longer limit your ability to double your annual earnings

It’s a lot of work, and it needs to be pursued every week without fail.  If you don’t actively pursue it every week your business will plateau out.  If you reach a point where you feel your business has plateaued for a while you’re probably not working on the above steps consistently enough.  As I said at the beginning of this section, your business isn’t going to ‘just grow.’  You have to make it grow, and the above steps are how to do that.

When someone who hasn’t started selling online yet asks me about what’s involved in running a business they usually focus on the mechanical aspects of it – keeping the books, incorporating, stocking inventory, etc.  Those are the mechanical things that must be done and do consume most of the time, but they aren’t the things that determine the success of your business (unless you don’t actually do them, of course).  It’s your efforts to constantly improve your business that determine its long term success.

I usually take a long walk once or twice on weekends, and spend that time just thinking about what I could potentially do to improve my business.  I’m sure it doesn’t look like work to anyone – it just looks like someone enjoying a long walk through a quiet residential neighborhood.  But it’s actually my time for planning growth.  All of the meaningful improvements I’ve come up with came during those walks, not while I was performing the mechanical steps of running my business.

Random Observations

The February lists of potential products to sell have been popular (thank you!).  I hope and trust you’re finding good products for you to carry.  If there’s any additional information you would find helpful please let me know.