Amazon merchant acquirers open new battlefront in China

It was the bastion US e-commerce giant Amazon could not conquer. Today, China is the new battleground for aggregators on the prowl for direct-to-consumer e-commerce brands that sell on Amazon.

US-based Thrasio, one of the biggest buyers of small e-commerce merchants, expanded to China in early 2021, three years after it first launched in the US.

France-based Branded Group, co-founded by former Lazada CEO Pierre Poignant, followed suit and entered the market last month. Singapore-based Rainforest, meanwhile, is seeking to hire a general manager to lead its operations in the country.

Almost half of top Amazon sellers are based in China

According to a Marketplace Pulse analysis published in January 2020, 49% of the top Amazon.com sellers are based in China, compared to 47% in the US. 

More recent Marketplace Pulse figures show that 75% of new sellers in the top four core Amazon markets – US, UK, Germany, and Japan – are based in China. 

New Amazon sellers based in China
Source: Marketplace Pulse

Previous estimates put China’s share of Amazon’s gross merchandise value (GMV) at 30-40%. Plus, unlike other international sellers, Chinese businesses sell their products on Amazon marketplaces in all countries.

To the customer, all that may matter is price and convenience. The location of the seller is not an issue.

“The majority of Chinese sellers are FBA [Fulfillment by Amazon] members and their products are delivered just as fast as those from other sellers,” points out Nate Jackson, vice president of acquisitions at Boston-based merchant buyer Perch.

Under the FBA programme, merchants simply send their products to Amazon’s distribution centres, leaving the storage, packing, shipping, delivery and customer support to the online retailer.

Scouting for targets

According to Statista, third-party sellers accounted for 55% of all paid unit sales on Amazon in the first quarter of 2021. While there is a huge opportunity for entrepreneurs to sell directly to consumers through marketplaces such as Amazon, many hit a plateau as they expand.

This is where roll-up companies such as Thrasio come in. They provide not only capital but also resources and expertise in areas such as branding, operations and product development, supply chain management and data analytics.

Thrasio has raised a whopping $1.7 billion in funding from investors such as Advent International, Western Technology Investment, PEAK6 Investments and Oaktree Capital Management. 

The company targets brands with $1 million to $10 million in annual sales, its sweet spot being private label, everyday hard goods with steady demand and stable search volume. It typically avoids tech, fashion food and grocery brands or any business that carries founder risk.

“Thrasio has always been acquiring Amazon sellers in the US but I would say the majority of the sellers that were acquired, their supply chain, their sourcing agents are still in China,” said Alan Lim, head of Thrasio China. 

According to Thrasio, brands typically see a 30% jump in sales just two months after being acquired. To date, the company has acquired over 100 brands with 15,000 products, with new products being added daily. It claims to be adding $1.5 million in revenue per day through merchant acquisitions.

Thrasio’s success has prompted more players and investors to jump on the bandwagon.  

In February this year, New York-based Elevate Brands raised over $55 million in funding from investors including FJ Labs, Novel TMT, Acceleprise.VC, Mons Investments, and Pandu Sjahrir of Singapore-headquartered Indies Capital.

“The Amazon third-party reseller market is very significant,” Sjahrir told DealStreetAsia, on why he invested in Elevate Brands. “Thrasio is an example of how the industry can be the fastest unicorn, decacorn [churning] industry,” he added.

Perch secured $775 million in a funding round led by SoftBank Vision Fund II in May. The Series A round is the largest ever raised by a consumer packaged goods company, according to Crunchbase, and brings its total funding to over $900 million.

Launched in 2020 during the pandemic, Branded Group has raised $150 million so far from investors such as Vine Ventures, Tiger Global and Lurra Capital. Its co-founder and CEO Pierre Poignant was previously the CEO of e-commerce giant Lazada, which was acquired by Alibaba in 2016. 

Last month, Branded announced its foray into the Chinese market. It is now hiring in Shanghai and Shenzhen, where the majority of Chinese Amazon sellers are based.

Screenshot of Branded co-founder and CEO Pierre Poignant’s LinkedIn post

“China is definitely at the top of our minds,” JJ Chai, co-founder and CEO of Asia-based Amazon merchant acquirer Rainforest, told DealStreetAsia in May. The company announced its formal launch with a $36 million seed funding round led by UK-based Nordstar Partners and joined by Insignia Ventures Partners. 

“We plan to acquire eight to twelve promising Asia-based Amazon FBA brands by the end of the year,” Chai said in a previous interview

Rainforest is currently hiring for a country general manager to lead its China team and acquire e-commerce brands from China-based brand owners. 

Besides Thrasio, Branded Group and Rainforest, several other international companies are seeking to acquire China-based brands, said Lim. 

Challenges abound

The Chinese e-commerce space is dogged by black-hat tactics such as brushing reviews, fake reviews, counterfeit products and overinflated sales and profitability figures. Brand acquirers have to do their due diligence to sift through the pool. 

Lim said Thrasio has closed a few deals in China, declining to disclose the number. He admits to finding it “very challenging” to navigate the market despite his years of local experience.  

“We will only go for sellers that develop brands, though some of them may adopt some of those negative practices but [the percentage] is very small,” he said.  

There are also communication, culture, language and timezone differences, making it more difficult for foreign players to enter the market.

A market that cannot be ignored

According to Marketplace Pulse, nearly $1 billion in fresh capital (a mix of equity and debt) was committed in 2020 to firms — Thrasio, Branded Group, Berlin Brands Group, Heyday, SellerX, Boosted Commerce, Razor and more — looking to acquire Amazon sellers and brands.

It will not be long before the rest of these acquirers enter China as it is a huge market brimming with potential. 

Amazon seller acquisition is definitely a space to watch in the next few months and in 2021 as e-commerce continues to grow in the face of the pandemic. 

“Everyone will eventually come to China. It is a market that you cannot ignore. But it is [a question of] whether you can be successful here,” added Lim. “You need to have the right team of people to be successful.”

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.