The End of Amazon FBA Aggregators.....

2022 might go down as the year where 90% of Amazon FBA aggregators go completely out of business. And if you guys don't know what an Amazon FBA aggregator is, these are companies that basically buy out small mom-and-pop Amazon FBA sellers just like you and I. And in 2020 and 2021, there was a huge acceleration as far as how many Amazon FBA aggregator companies there were. But the biggest one has always been Thrasios. And in this YouTube channel, back in November of 2021, I started seeing cracks in this type of business model. And there was a few reasons why I saw cracking and basically a bubble about to burst in the Amazon FBA aggregator space. The first one being that valuations basically doubled in one year. In 2020, you were able to purchase an Amazon FBA business for 2 to 3 times their yearly income. Meaning if an Amazon FBA business generated $100,000 worth of income per year, you were generally able to buy that business for $200,000 to $300,000. But fast forward to the end of 2021, while that same business that generated $100,000 worth of profit is now valued at anywhere between $400,000 to $600,000. But the thing is, valuation wasn't my biggest concern. I knew that a bunch of institutional money started flooding into these companies, so valuations were bound to go up. But I feel like all this money was being funneled into these companies at the worst possible time because valuations are based always on the last 12 months of a business. So meaning in 2021, where a bunch of different Amazon FBA aggregators started getting into the space, days, we were looking at 2020 numbers. And the thing is, we all know 2020 and 2021 were great, but specifically in 2020, we had high demand for our products, right? So our revenue went up a lot. And when we minus expenses, freight wasn't this high up. Raw material didn't start going up in 2020, right? And we all know about the whole trucking industry, shipping industry. We started paying a lot more for storage fees, right? So that all happened in 2021. Well, we didn't take into that account in 2020. So let's say we had right around a 30% profit margin. We were paying up to a 30% profit margin for 2020 numbers where basically our profit got cut in half in 2021. But the thing is, as long as demand is steady, these Amazon FBA aggregators can raise prices and in turn raise profit margins. Margin. But now fast forward to 2022, where we started experiencing for the very first time ever a decline in e-commerce sales. And don't take my word for it here. The first retail report of the year in February, we started seeing right down here that spending— the biggest dent in February's numbers came in online shopping, with non-store sales down 3. So this is the first time ever that ecommerce sales actually went down month over month in its history of this being reported. And maybe February was just an anomaly. Maybe it was just a blip in the radar, right? Well, March came out and the same thing happened. By contrast, online sales slumped sharply by falling 6.4% in March. Right? So now we see that February and March, there is a huge shift in demand where now we can't have pricing power, we can't raise our prices, and profit margins are at an all-time low. And we did get some good news in April where you can go ahead and see here that non-store retail, which is e-commerce, finally went up 2.1% month over month. And how did this look like in a chart, right? Well, we went ahead and saw this chart here that I went ahead and made in previous videos. We all know that the projection for e-commerce is always going to go up, but we just had so much demand here in 2020 and 2021 where we're seeing declining in demand. But over the years, we're going to see e-commerce go straight up. And the crazy thing is, I remember making a YouTube video where I wanted to buy an Amazon FBA business on Empire Flippers, and it was so competitive that if I didn't wire the money 1 to 2 days of a business being posted, I didn't get the business because that's how many buyers there were to buy these Amazon FBA businesses. And again, the biggest player in town was Thrasios, and it still is to this point. As you can see here, This actual article was published on October 25th, 2021. Again, the peak of the market. And it says Thrasio, the Amazon FBA aggregator, raises $1 billion with a B in fresh funding at the valuation of up to $10 billion. Again, institutions were throwing money at these companies. And as you can see, it is said that it's currently on a rate of buying 1.5 businesses per per week and now has over 200 brands in its portfolio. So a company like Thrive Sale, which is the biggest one in town, is buying right around 2 businesses per week in the year of 2021. And then I saw a very interesting article about a month ago that said some Amazon FBA aggregators pause acquisition. As you can go ahead and see here, it is March 29th, 2022. And I started thinking to myself, why are these companies going ahead and stopped purchasing these businesses at the accelerated rate? I knew that in November, shit was about to hit the fan, but they didn't stop buying until April. And as you can see, the key reason for pause acquisition was that Amazon seller valuations were increasing up to the end of 2021. In the 4 to 8 month span from 2020, they doubled. Just like I mentioned, they doubled in price. But it says here, however, the trend didn't continue into 2022. Valuations are stable now. So they're saying that the reason why they stopped buying Amazon FBA businesses was because valuations were getting out of whack. But in that same article in October, they were still purchasing and valuations haven't gone up since October. So something is going on, right? And as you can go ahead and see in this new article that was published, right around 2 weeks ago. You can see Amazon aggregator Thrasios begins layoffs and they name a new CEO. So obviously something is going wrong internally. And let's go ahead and take a look at this article right over here. How Amazon aggregator Thrasios went from hypergrowth to layoffs in less than 2 years. What a title, right? As you can go ahead and see here, e-commerce startup Thrasios helped define the Amazon aggregator model, buying up a bunch of top brands. But on May 2nd, the company announced significant layoffs and its second CEO change in 8 months. And how much did they lay off? They laid up to 20% of their staff. And the former employees described internal chaos, which included overhiring and little long-term planning. And when going through this article, you have to keep in mind that Thrasios is the number one player when it comes to Amazon FBA aggregators, and a bunch of these other companies are following suit of whatever Thrasios is doing. And as we go down to this article, we know there's a lot of competition, right? Well, the CEO wasn't too concerned. It says despite the competition, Cashman, a co-founder, remained confident that Thrasios would win out. It says you could take 20 people, give them each $100 million, and say, go copy Thraceo's business model. He said in a podcast in 2020, right? And you might get one success out of that, and the other 19 will burn through a lot of cash. And what is Thraceo doing right now? They're burning through a lot of cash. So I guess the CEO basically named their company as one of those companies that is going to quote unquote fail, right? And again, in that 2020 podcast interview, Caspian said using debt to raise money was a key part of Thrasio's success. That's a fairly advanced way of funding a company, he said, and many entrepreneurs would not understand how to access those markets. He says, speaking about Amazon roll-up space, industry broker told the Information in March that for every dollar a typical roll-up raised in equity, it raised $4 in debt. While starting, an executive told the information that interest on that debt ranged from 7% to 15%. Again, that's a key figure right there. The debt that they went ahead and took on was 7% to 15% interest, right? And that was before the Federal Reserve raised overall interest rates. So interest rates have basically been raised by almost double now. And now their interest is basically becoming due and that interest rate is no longer at 7% to 15%. It's a lot higher than that. And the article goes on to say, debt financing allows founders to raise capital quickly while retaining equity in their company. And last paragraph says, debt financing can be riskier if a company is not profitable because they will receive pressure from lenders to repay back the loan. So why is Thrasios laying off staff and stopped purchasing Amazon FBA businesses? Because they are struggling and all these different types of banks that lend them money are telling them to repay. Pay that debt now that the demand is not as big as 2020 and 2021. And it all goes back to this valuation because as we know, Thrasios were buying out a bunch of Amazon FBA businesses in 2021, but this was based on 2020 valuations where the original owner was getting that 30% profit margin. But based on all the raw material going up, freight going up, PPC going up, storage going up, so many different costs going up, they were going ahead and having a 15% profit margin. And that was before the interest that they had to go and pay. And the thing is, they have employees and different salaries that they had to go ahead and pay. It wouldn't surprise me that a lot of the Amazon FBA businesses that they went ahead and purchased are getting as little as 2% profit margin. After all the different types of fees that Thrasios had to pay. And it wouldn't surprise me if a lot of Thrasios brands are actually losing them money after all the expenses that they have to pay. And we might see Thrasios go from being the biggest purchaser of Amazon FBA business to the biggest seller of Amazon FBA businesses just so they can recoup some of that money back. So I truly think that in 2022, demand is going to wane. It's going to be hard for a lot of Amazon FBA sellers, but there's going to be a huge opportunity where I think value is going to be there with purchasing an Amazon FBA business, because I know that a lot of these other Amazon aggregators are going through the same thing as Thrasios. Thrasios is just the first domino to fall.