Gav Kwok, A Highly Successful Amazon Partner, Forecasts the Prospects of Amazon FBA

The world has been through significant changes these past couple of years, and e-commerce has felt them, too. The pandemic attracted those who had never purchased anything online and converted them. Existing shoppers bought more. Over 2020 and 2021, the pandemic boosted online sales by over $218 billion, Digital Commerce 360 found.

Then again, there were problems with supply chains affecting product availability and, eventually, in 2022, inflation. In 2023, businesses still feel the consequences of what happened over the past couple of years, which is still happening today. Businesses working with Amazon through the Fulfillment By Amazon model are no exception.

Gav Kwok is an entrepreneur who runs a nine-figure FBA business. He runs a wholesale operation with strategic partnerships with suppliers, potential partners, and investors. As far as escaping some of these issues, he’s proven to be farsighted.

“I get asked a lot about the supply chain issues, and I have to say that it hasn’t affected us at all,” Gav Kwok says. “We only use manufacturers from the United States. Unfortunately, many people doing Amazon private labels were using Chinese manufacturers and they had their shipments stalled or just failed to arrive.”

The growing consensus in the industry seems to go along with what Gav Kwok advises to any entering FBA right now — using U.S. companies. Or, if not possible, move to manufacturers as close as possible to the United States.

That’s only one of the problems businesses operating with an FBA model face. This year, 2023, Amazon has planned rate hikes. Some of them have already been pushed out in January. The rest are set to come into effect in April. The change caused by the first wave of rate hikes was noticeable.

“With many of the products we were originally selling, the margins have been affected on our side,” says Gav Kwok. “So we had to adjust our prices for every product we carry.”

It’s been a tough year for Amazon. The company’s stock lost 51% of its value, as reported by CNBC. In its release of financial results from the fourth quarter of 2022, the company only earned $0.3 billion, well below what it usually makes in the busiest time of the year. The company wrapped up the year with a net loss of $2.7 billion. The company terminated thousands of positions in January, laying off 18,000 people.

“We’ve seen a decline in consumer spending. I’ve noticed that I don’t shop as much on Amazon as I used to, and I’m sure other consumers think the same,” explains Gav Kwok. “The pandemic phase of being stuck inside and just ordering things is over. People are outside now or have maybe stockpiled goods. The price increases are definitely not helping.”

For the next quarter, Gav Kwok’s predictions for Amazon remain grim — he sees a chance that the situation will worsen before it eventually improves. But with the prices increasing and the prospects of shopping in person, being able to see, touch, or try the products they’re shopping for, people might still hold off returning to Amazon in full force.

However, Amazon sellers are already doing their part in enticing shoppers. In a bid to offload some of the inventory that’s getting increasingly expensive to keep in Amazon’s warehouse, many sellers have gone into full sale mode, offering discounts on some of their products.

“The cost of keeping some of these products is going to be greater than the margin, so sellers need to get rid of inventory; otherwise, Amazon will lower their Inventory Performance Index score,” explains Gav Kwok. “We had some products that we were just trying to get rid of, lowering the prices. But we had to raise prices to 30% for the products that sell well. Just to remain competitive.”

As the reality of Amazon’s new pricing structure becomes evident and kicks in fully in April, businesses will likely do their best to eliminate their unmoving inventory as quickly as possible. They have other strategies at their disposal besides sales. Companies can, for example, increase PPC spending, use different marketing tricks, create bundle offers, or even donate them.

If all else fails, the final option is to use FBA’s liquidation program, where a specialist company buys the inventory, and the seller pays a fee to Amazon. Even if this might be the worst-case scenario, it has an upside.

“We have to phase out some of the products that were moving slowly or being too expensive and make room for better products,” says Gav Kwok. In the end, it just might be that this shakeup will make sellers only sell the products that are more likely to succeed. In an industry where finding a winning product is already a major barrier to entry, it’s unlikely it’ll go down any time soon.

McClatchy newsroom and editorial staff were not involved in the creation of this content.