In last week’s examination of the survey results, we explored insights from brands that have never sold on Amazon or that previously sold on Amazon and stopped. In this second examination, we review the experiences of small brands currently selling on Amazon.

For the purposes of our analysis, small brands are defined as those with annual revenues of less than $500,000 over the past 12 months. Next week, we compare the observations of large brands with revenues of more than $500,000.

Overwhelmingly, the reason why small beauty and wellness brands enter Amazon centers on business expansion. All brands in 2019 and 95% of brands in 2020 reported business expansion to be either a moderate or major factor for joining the platform. With 112 million Prime members in the United States alone, it’s easy to understand why Amazon is such a draw. As one brand founder stated, “[Amazon is the] biggest player in the market with millions of customers who are ready to buy.”

For nascent brands, there is a major appeal to working with an awareness driver like Amazon. One brand founder said, “Amazon is great when your brand is new because it allows you to get your products in front of millions of people that have never heard of you. I’ve also found through customer research that many people feel more comfortable ordering from Amazon than an unknown indie brand website (due to convenience like two-day shipping as well as Amazon’s history of putting their customers first).”

Outside of business expansion, the next two reasons brands cited for joining the platform can be broadly categorized as greater convenience, which grew meaningfully in importance year-over-year. Of the 2020 surveyed brands, 77% appreciated the option of having Amazon handle their logistics, up from 52% of brands in 2019. Another 59% of brands felt working with Amazon was easier than launching their own direct-to-consumer businesses, compared to 55% of brands in 2019. As a brand founder put it, “Amazon provides you with a fairly instant global presence, without the need to invest in your own website.”

Finally, requests from existing customers to be on Amazon and efforts to fend off third-party resellers were tertiary motivators for working on Amazon, with 30% to 40% of brands citing these reasons across both surveys. On the latter point, it can be hypothesized that small brands that typically have limited distribution and low brand awareness are less plagued by counterfeits and unauthorized resellers than big brands, thus less likely to cite these issues as key priorities for joining the platform.

With COVID-19 shuttering brick-and-mortar stores around the globe, the need to shift toward digital was imperative. A little over half (55%) of brands suggested that the pandemic directly impacted their decision to sell on Amazon. For many, COVID-19 was the forcing function to do what they perceived to be inevitable. As one brand founder wrote, “COVID may have accelerated our plans, but we always thought of Amazon as a major player for our brand.”

As discussed in the previous article focusing on brands that don’t currently sell on Amazon, COVID-19 has had limited impact on changing the perceptions of brands that were—and remain—steadfastly opposed to Amazon. If anything, it has further hardened their opposition to the platform. But what COVID-19 has accomplished is the acceleration of onboarding of small brands that were either open to or already considering joining the platform.

The vast majority of small brands (98%) leverage a 3P model by which they own their inventory and Amazon acts as a sales agent via its marketplace. Of brands on 3P, 63% use the Fulfillment by Amazon (FBA) service in which Amazon stores their products in its warehouse and handles order fulfillment, reinforcing the finding that convenience is an important factor for joining Amazon. However, the proportion of brands using FBA has gone down from 70% in 2019 to 61% in 2020 with a concurrent rise in the proportion of brands on 3P fulfilling their own orders or using Fulfillment by Merchant (FBM) from 27% to 36%.

While more brands are utilizing the marketplace and fulfilling their orders, these are also the brands that seem most likely to eventually leave Amazon. They constitute over 75% of small brands that have departed the platform. FBA is not without challenges. In many cases, the model appears to be the lesser of two evils, but the promise of Amazon-handled logistics is falling short. A brand founder lamented, “It’s unacceptable how the products are treated (dusty and filthy), and the stock that does not turn fast enough has high costs.”

Another brand founder added, “Amazon regularly destroys products that they say are expired even if they have only been in inventory for two months.” Yet another said, “Sending inventory into Amazon is problematic. Stock is often lost and Amazon is not very helpful resolving the issue because UPS doesn’t scan in every package.” COVID-19 disruptions didn’t help matters. A frustrated founder complained, “We were not allowed to send stock to be replenished during certain lockdowns.”

Finally, returns are a major concern. “There are a fair number of customer returns that seem disproportionate to the experience of D2C through my own e-commerce website. Not sure why that is,” wondered a brand founder. A peer founder agreed, “Returns are always a problem. Most returned items are accepted without specific reason by Amazon customer service, and the items go directly unsellable.”

Read the rest of our Beauty On Amazon series for stories on Amazon’s beauty push in Part 1, the interfaces brands use to sell on Amazon in Part 2, advertising options on the platform in Part 3, and the reasons why many brands avoid the giant e-tailer in Part 4A.