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Amazon plays banker
The retailer contacted some marketplace sellers with loan offers.
Topics: Amazon Capital Services Inc., Amazon Lending, Amazon loans, Amazon seller loans, Amazon.com Inc., ChannelAdvisor, Christine Rutemiller, e-commerce, Eric Best, Google Inc., Google Product Listing Ads, Google Shopping, incremental funds, Kabbage, Mercent Corp., northern marine electronics, online marketplaces, paypal inc., Scot Wingo, Second 500 Guide, Top 500 Guide
Amazon.com Inc. appears poised to add loan financing to its host of e-commerce services. Some retailers who sell in Amazon’s marketplace this week received invitations to participate in a new loan program called Amazon Lending, operated by Amazon Capital Services Inc. Retailers can register for the program by invitation only.
More than 20 retailer clients of e-commerce and marketplace services firm ChannelAdvisor received invites this week, says ChannelAdvisor CEO Scot Wingo. He posted the text of one such invite on his company’s blog, but did not reveal which clients received the invite.
Amazon declined to comment.
The invite says Amazon had pre-qualified the recipient based on its selling performance in the marketplace, and that retailers can use Amazon Lending funds to purchase inventory and increase their sales on Amazon.com. The interest rate is 13%. Retailers register online for a loan using their seller account credentials and, if approved, Amazon Lending will deposit the loan amount into the retailer’s Amazon seller account within five business days. Monthly loan payments are automatically deducted from the retailer’s Amazon seller account, the invite says.
Wingo says a number of ChannelAdvisor clients are interested in taking Amazon up on its offer.
Christine Rutemiller, co-founder of Northern Marine Electronics, an e-retailer of consumer electronics and accessories and an Amazon marketplace seller, says she’s interested in hearing what Amazon is proposing. “If they were to lend money at a good rate, we could purchase more inventory and expand our product base,” she says. She says Northern Marine, which currently sells about 100 products through Amazon’s marketplace, did not receive an invitation about Amazon Lending. Northern Marine is No. 921 in the Internet Retailer Second 500 Guide.
“Having quick access to extra cash in the busy fourth quarter holiday season could prove helpful to merchants that have already allocated the majority of their cash flow to inventory or advertising budgets," says Eric Best, CEO of Mercent, which helps retailers sell through online marketplaces. Amazon’s new program also comes at a time when retailers may be further strapped for cash because of changes Google Inc. recently made to Product Listing Ads on the search engine. In the three months since Google Inc. introduced its Product Listing Ads for Google Shopping, retailers have suddenly lost a slew of free advertising on the search engine giant, he says, which they’ve had to pay to get back.
“For merchants, Google Shopping has represented 25-30% of their total retail revenue,” Best says, adding that this year the combined search and commerce engine will generate about $2 billion in overall retail revenue. “Even at a reasonable industry average of a five to one return on advertising spend, our customers are spending an extra $100 million annually to drive advertising on a platform that used to be free.”
In the wake of Google’s shift, e-retailers have been scrambling to find new routes of customer acquisition and sources of capital for their advertising budgets, Best says. Amazon Lending could prove to be one reasonable solution, though Best and Wingo agree that an interest rate of 13% may be somewhat high compared to rates available through other small business lenders. Kabbage Inc., for example, a ChannelAdvisor partner, provides cash advances to online businesses at a rate of 1% to 7% the advance’s value, depending on the size and duration of the loan. Moreover, where Amazon takes approximately five business days to approve a loan and deposit the funds, Kabbage offers an instant transfer to a PayPal account or in three to five days to a bank account, the company says.