As the market for buying small e-commerce businesses heats up, established Amazon sellers are beginning to acquire brands, too.
One of those brands is Goja, an e-commerce company that launched on eBay and later Amazon in 2009. Today, it boasts over a thousand of its own products. In 2018, it was one of the top 40 Amazon sellers in the world, and a year later, in 2019, it received an investment from JP Morgan, 3L Capital and Next Coast Ventures for an undisclosed amount in order to begin acquiring existing brands for the first time. Goja bought 13 brands last year, including some bigger-ticket deals, including the foot callus remover Love, Lori for $2.35 million.
Goja, with its years in the business, illustrates just how long Amazon sellers have been building up massive product catalogs. Now that model of a large, scaled Amazon business is creating an investor frenzy — over the past year and a half, venture capital companies have poured $7.5 billion in venture capital investment into new companies like Thrasio and Perch dedicated.
Many of those big early sellers are taking note. They are either acquiring companies of their own, or they are getting acquired. In July, for instance, Perch acquired an early Amazon seller called Web Deals Direct for a deal worth more than $100 million.
Modern Retail spoke to Walter Gonzalez Jr., the company’s founder, about how he’s watched the Amazon Marketplace evolve since 2009. This interview has been condensed for clarity.
I would love to know more about how you guys started, and how you got to this point where you are acquiring brands on Amazon.
I wish I could tell you we perfectly saw it landing where it is today, but I don’t think that’s the way the world works.
[In 2009] I was in a different business where we were doing international lending. A company couldn’t pay us back, and I took back a bunch of equipment. One of the ideas I came up with was to sell it on eBay. It sold so quickly and so well that I fell in love with the idea of marketplaces.
Marketplaces were looked at as a place where you want to liquidate product, but I found it to be very scalable, and you had a very captured audience right in front of you. That was the thesis for Goja: to build out a marketplace-focused e-commerce solution.
This was 2009. [That year], Amazon started allowing third parties to sell on their platform. Up until then, you could only sell books as a third party. I couldn’t have seen Amazon becoming what it is, but we could see marketplaces having more importance.
We said, we can build our own products, and we can go straight to consumers, and we can take their reviews, and every time they give us feedback, we can incorporate it into our next build which happens every three months or four months. So this really fast improvement cycle, much like H&M, much like Forever 21. I think it was very innovative at the time.
At what point did you start acquiring pre-existing brands?
We launched our first brand in 2011, which is [camera lens cleaning cloth] Magic Fiber. We launched [camera accessories brand] Altura Photo, which is one of our largest brands, in about 2014.
JP Morgan, 3L Capital and Next Coast Ventures came to us, and we started talking back in 2017 about doing something together. We didn’t ink a deal until 2019. By that time, they had invested in a company called 101 Commerce, which had purchased about 11 brands in about six months. So once we make a deal, we buy all 11 brands at once. I don’t think we could have started, and I don’t think anyone should start, just acquiring brands if they haven’t built an infrastructure and know-how that really leads up to being able to do it well.
Before you started acquiring brands, how many of your own products were you selling?
EBay was about how many listings you could have and how many products you can have. [With] Amazon, it was the opposite. So for eBay we had thousands of products, at one point we had something like 60,000 listings, but on Amazon, we may have had 1,000. Today we have several SKUs that will generate a million dollars.
You mentioned the investment from JP Morgan, 3L Capital, and Next Coast Ventures to fuel your acquisitions. What did the three companies see in the idea of buying up Amazon brands at that time?
What they saw was scale. They saw [that] there’s millions of Amazon sellers. Most of them have to, by definition, be relatively inefficient in some aspects of their business, and most of the things that they’re inefficient in are going to require capital and an infrastructure that no small business could really build. They’re not all going to build an ERP solution. They’re not all going to build a warehouse solution.
They said, look, we have all the ingredients, but the essence for why any of these rollup strategies work is because you’re a very, very experienced and solid operator that can scale. It’s the operator that does this, not the capital. When I hear all the capital that’s going into this, I think that’s interesting, but I don’t think it’s the ingredient that’s necessary.
Are you skeptical that most of the newer aggregators can last?
You can get really smart people in a room who have never built a rocket, and tell them build a rocket, and they’re going to crash a bunch of rockets before they ever get that rocket to fly. I see very smart people being put together and being given a lot of money, but it’s going to take them time to figure it out. What I’m seeing already, I’m seeing large aggregators failing. If you grab someone who worked at Best Buy or at Walmart or at Amazon, it doesn’t mean they know all of the components it takes to sell on Amazon, it means they know one. I fully expect a lot of failures not just because of lack of intelligence or lack of money but just lack of experience.
How has the rise of the aggregators changed the way people approach selling on Amazon? Are you seeing more people launch products with the explicit idea of selling it to, say, Thrasio in two years?
Absolutely that’s happening. Before, if you started a small business, there wasn’t a market for small businesses. How it’s affecting selling on Amazon itself — the platform is very competitive. It’s super information intensive. Amazon is just maturing as a platform to sell, and as it matures, it becomes just as competitive and just as sophisticated and needs as many tools as selling on your website did.
Because of the aggregators, do you think it has become harder for smaller sellers to succeed now versus ten years ago?
Yes. We have about 150 employees. The subject matter expertise of every one of our employees surprises me. Our head of merchandising operations has been doing it for 11 years. When you ask about, “can the others compete?,” if you’re a smaller business those types of issues are going to pop up for you just as much as they pop up for a bigger business. It’s hard to solve them.
[Amazon] is more competitive, no doubt. I think it is harder for smaller businesses to launch unless they’re very committed to the process and have some capital behind them. But that being said, I think there’s a lot more resources today [for Amazon sellers, such as online tutorials and groups].
A lot of the aggregators talk about how they believe they aren’t directly competing with each other, because Amazon is so big that there’s room for many different aggregators to succeed. What do you make of that?
When you’re a new entrant into this aggregator story, how can you say anything otherwise? You have to say that. I don’t think it’s an infinite market. But I do think there’s a ton of space for really well-run Amazon sellers at scale. You can have a hundred billion-dollar companies on Amazon. To answer your question, I think there’s a ton of space, but what concerns me is I keep hearing about the amount of money people raise versus the amount of operational success they’re having.
[The aggregators] are saying they raised a hundred million dollars, but they’re not being given access to cash. They’re being given access to 10 [million], and being told, “show us you can do something with that 10, and we’ll give you the next 10.”
I’m starting to hear the brokers tell me that a lot of these aggregators are not able to locate that next tranche of their finances. What I think these aggregators are finding is, these small sellers are really good at what they do, and so just putting more money into their business doesn’t solve the fact that they were super nimble, had a lot of information and were subject matter experts on their category. If you don’t onboard and learn that as well, you’re going to be a worse operator than those small sellers were.
That’s why I say I think there’s a ton of space, but the space is going to be dominated by amazing operators, not by the people that have the most money.