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Amazon can be a 'necessary evil' for small retailers around the world

Key Points
  • Small retailers around the world rely on big e-commerce firms to get their products in front eager consumers seeking convenience and affordable prices.
  • But the visibility and accessibility big tech companies give to smaller businesses come at a price.
  • "If you don't sell on Amazon, you don't have a big business," one U.K. retailer told CNBC.
REUTERS/Pascal Rossignol

For Mike Hirschkorn, there's a simple, harsh reality when it comes to making sales: Amazon is a "necessary evil."

Hirschkorn oversees the U.K. operations of Gorilla Sports, a German-headquartered online retailer that sells sports equipment like free weights and cardio machines. He said roughly half of the company's U.K. sales come via Amazon.com.

"Basically if you're an online retailer in the U.K. you have no choice," Hirschkorn told CNBC's Beyond The Valley. "If you don't sell on Amazon, you don't have a big business."

Retailers like Gorilla Sports rely on big e-commerce firms to get their products in front eager consumers seeking convenience and affordable prices. The difference, according to Hirschkorn, is a customer base of a "few hundred" or "few thousand" locally versus "millions" with Amazon.

But the visibility and accessibility big tech companies give to smaller businesses around the world come at a price.

Hirschkorn said Amazon takes an 18 percent cut, including VAT, of the sale of each product, which he calls a "very hefty chunk" in a business with slim margins. The company has tried to shift sales away from Amazon to its own website, but soon discovered it went from paying one tech giant to another.

"It used to be that we were very keen to drive traffic from Amazon to the website because each sale was cheaper, but now we're spending almost as much as a percentage of our sales advertising on Google as we would be paying fees to Amazon," Hirschkorn said. "Either way one of the big Silicon Valley companies is going to win."

"We spend billions of dollars each year to help our selling partners succeed in our store, driving traffic, operating the servers and infrastructure that keep our online store open at all times, and combating fraud and abuse. Our biggest single capital expenditure is our fulfillment and distribution network, which directly benefits our selling partners, who now have as many units in that network as Amazon itself," a spokesperson for Amazon told CNBC via email.

"Our investments allow our selling partners to focus on their products while reaching customers throughout the world, leveling the playing field and lowering entry barriers. Today, our selling partners are outperforming Amazon retail -- they have grown from zero to 52% of paid units sold, and continue to grow twice as fast as Amazon's own sales," the spokesperson further added.

Google did not respond to CNBC's request for comment.

Either way one of the big Silicon Valley companies is going to win.
Mike Hirschkorn
Gorilla Sports U.K. Director

Consultancy PwC found 59 percent of the people polled in its Global Consumer Insights Survey shopped online at Amazon, JD.com or Alibaba's TMall in 2018. Amazon sold more than 100 million products during its big "Prime Day" event last year, while Alibaba racked up more than $30 billion in sales from its "Singles Day" event alone.

Many small retailers have no choice but to use Amazon or Alibaba, and reluctantly agree to those platforms' terms and conditions.

Never a greater time for small businesses

Jason Tay, co-founder of retailer Fair Havens, agreed that Amazon's scale and volume are incomparable even to other, large online selling platforms. Fair Havens sells natural skincare products in the U.S. through the e-commerce giant's fulfillment program and also locally in Singapore through his own site and other local platforms such as Alibaba-owned Lazada.

"When you compare the different sales channels ... the others pale in comparison to the scale of Amazon," he said. "We sell in the States on Amazon, as well as eBay, and for every 1,000 sales that we have on Amazon, we maybe have 3 on eBay."

Tay explained that while Amazon's cut on sales are higher than other platforms, it is still comparatively lower than running a physical store, which would have sizable overhead, fixed costs including store maintenance, managing inventory and hiring employees.

Even with the presence and influence of big tech, there has never been a better time to start an online business, he added.

"I personally believe that there has never been a greater time in history to start your own small business or there has never been a greater opportunity for small businesses than the time we live in," Tay said, adding, "With very little capital, and with very little risk, you now have access to the global market."

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