The latest trend in the Amazon ecosystem: Thrasio and its clones

By now, there are about 10 founding teams (Razor, SellerX, Orange Brands, Zeelos, Brands United, Thirstii, Branded, … ), which aim to replicate Thrasio’s success in Germany and other European countries. In Great Britain, for example, London-based Heroes has recently launched. Jump-started by large venture capital investments (e.g. 100 million Euro for SellerX), the digital “light” versions of large consumer brand corporations like Procter & Gamble shall now be built as quickly as possible.

As Amazon experts, we have been following the phenomenon of Thrasio and its “clones” with great interest for a while now. Over the last few weeks, we have taken a closer look at the business model behind it and tried to assess the ambition of the startups in light of the reality of doing daily business on Amazon.

Which FBA businesses are the acquisition targets?

Thrasio’s approach is to offer FBA sellers, which normally would not be considered for acquisitions due to their size, a real exit option for the first time and to increase their sales and profitability by combining them under one roof. The hypothesis behind this is that these sellers cannot exploit their remaining growth potential on their own due to limited resources (time, capital, employees, …) and have therefore reached a point in their development where they can often only stay at their level of success, but not expand it. The target figure for acquisitions in this respect is around 1 million Euro in annual sales. About 3,300 FBA sellers in Germany and about 4,200 in other European countries fulfill this criterion. On top of that, the Thrasio clones, according to their own statements, primarily target “category leaders” that have high search rankings for certain keywords.

From our point of view, there are indeed successful sellers who lack the know-how, time, or even motivation to expand their business – however, these sellers often have a potential turnover of less than 1 million Euro per year.  In our experience, being a profitable FBA seller beyond this turnover size already requires extensive efforts as it is quite a challenge to grow to a relevant size in the “shark tank” that the Amazon marketplace is. Since the FBA model has become more attractive over the years, the need for efficient structures, expert knowledge, and resources on the seller side has been steadily increasing due to the growth in competition from sellers from all over the world (especially Asia). For this reason, our recommendation would be to focus more on smaller FBA businesses that are not profitable yet but show increasing turnovers with lots of promising growth potential. Nonetheless, it requires a deep understanding of the market (and also a little bit of luck) to discover these ‘uncut diamonds’.

Can the startups create synergy effects to leverage economies of scale?

The hypothesis of allocating resources to procurement, logistics, and marketing more efficiently within a ‘holding structure’ generally makes sense.  However, as already indicated, we assess the initial situation in this regard as follows: the majority of the targeted FBA businesses have already optimized these areas to a large extent, which is the reason for their success in the first place. When successful FBA sellers reach out to us, we often see that keywords have already been optimized, product benefits are very well presented in pictures, and CPCs of their campaigns are refined. The FBA sellers’ in-depth knowledge of only a few products or product categories is a considerable advantage when operating on Amazon. The Thrasio clones must therefore find ways to adapt this knowledge to a potentially wide range of products. We can already see first tendencies in this regard: SellerX, for example, plans to continue working with the founders of their acquired FBA businesses for two to 12 months after the acquisition, so that also a knowledge transfer can be guaranteed to a certain extent in addition to taking over the sellers’ assets. 

Furthermore, the Amazon marketplace has numerous rules and mechanisms that are constantly changing. This means that the newly founded startups are additionally facing the challenge of continuously staying up-to-date and refining their internal operations for all of their products accordingly. Helping our clients with all their Amazon needs, we notice every day how complex the marketplace’s ecosystem has become and that special software and in-depth expert knowledge are crucial factors for success.

How could further growth of the acquired businesses be achieved?

Despite the challenges mentioned above, there are still products that have not yet reached their peak and whose sales will potentially continue to grow. However, we also see many products for which the competitive situation indicates already today that it will become increasingly difficult to achieve a relevant turnover in the future. In this regard, one of the biggest dangers for European FBA businesses are Asian traders (especially from China), which sell directly on the EU marketplaces of Amazon and usually can offer their products at significantly lower prices due to various competitive advantages (even unfair ones such as not paying sales tax). Similarly, more and more large consumer brands are discovering Amazon as a direct sales channel for themselves, which further intensifies the competition in certain product categories.

All of this, coupled with an increase in advertising spending, freight costs, and Amazon marketplace fees, makes it much more difficult for profitable FBA sellers – especially with products that are not registered in the Amazon Brand Registry or that have no USP – to maintain or even increase their current margins in the future.

We see growth opportunities for FBA sellers, which have been active on the Amazon marketplace in only one country so far. These sellers could still be developed by starting to offer their products also internationally in other Amazon markets. However, the need to adapt to each country’s Amazon marketplace should not be underestimated. Local expertise in terms of buying habits or search behavior of online shoppers is extremely important in this respect. As an example: In order to be able to internationally offer our Remazing clients tailor-made consulting, strategic planning, and operative implementation, our team of more than 50 employees consists of people coming from 12 different nations. 

After all, optimizations outside of Amazon (social media marketing, branding, own online stores, selling on other marketplaces, …) could also still lead to an overall increase in sales for some sellers. Thrasio hopes to gain leverage in this regard by guaranteeing quality on a broad scale, which, however, requires a large number of acquired dealers under its roof – and thus intensifies the competition for the best FBA sellers.

Will we see a market consolidation?

Precise answer: Yes.

There are currently almost two dozen German and European Thrasio clones that will fiercely compete for a limited number of FBA sellers in the coming months.

As already mentioned, only a few of all active FBA sellers are close to achieving annual sales of more than 1 million Euro, and not all of them actually possess strong brands or reach the targeted level of profitability. Some of them might not even want to sell their business despite lucrative offers.

All of the above combined with the self-imposed pressure to succeed due to the amounts of venture capital that the mentioned startups have raised will drive up the prices for acquisitions of FBA sellers that are in the focus. In this regard, the current market dynamics will likely lead also to a number of mispurchases that might make some Thrasio clones wonder in hindsight why they did not already notice certain challenges with regard to the operational execution of the FBA businesses. 

The subject matter has surely gotten an additional boost due to the recent announcement by Thrasio to now also enter the German market. In this regard, the first takeover of one of the German clones (Thirstii) should be considered as an “acqui-hire” that sees a motivated team and the needed local entity (in formation) in Germany join the original startup for its international expansion. The officially communicated amount of funding, which is intended for Thrasio’s activities on the German market (225 million US dollars), exceeds clearly even the announced funding round of SellerX. Thrasio is currently looking for a large number of employees for its German and European undertakings as it has been advertised on its website (that is now also available in German). 

We believe that it is only a matter of time until either Thrasio will buy up more of the European startups that were recently launched or some of them will merge in order to be able to survive against their American role model and the growing competition from Asia.

Who will win the game?

In light of the overall situation, one can assume that only those companies will survive the margin-driven fight for market share, which have access to the most capital and choose the FBA sellers with the most future-oriented products for their acquisitions. 

A deep understanding of Amazon and an own established infrastructure are a clear advantage when looking at the fast-paced developments in the market, which is why Thrasio has a good chance to also dominate the European market quite quickly. 

In this regard, we also see a good chance for leading Amazon sellers from Germany like Berlin Brands Group or KW Commerce to leverage their extensive Amazon expertise, financial strength, and existing own structures in Asia to make strategic acquisitions of other FBA sellers themselves.

The numerous FBA sellers that now have a real exit option for the first time are definitely among the winners of the current development. After years of hard work, they can now finally reward themselves and potentially become millionaires “over night” in some cases.

Because of this, we assume that the FBA model will become even more popular in the future. If the Thrasio clones’ promises of success will hold true and their large investments will result in increasing sales on Amazon, it is actually already quite clear who will be the biggest winner of all at the end of the day: Amazon itself.