In an effort to become more efficient, more profitable, and more flexible, we’ve decided to close Tastefully Driven and stop selling our products on Amazon.
Effective March 1 the e-commerce store will be closed down and we will sell any remaining inventory (non-detailing of course) on Amazon. We’re running a 30% off sale to try to blow out as much of the inventory as we can before that date. We’ve already pulled all detailing items down from Amazon and have no plans on listing them again in the future. As soon as the fitness items, poker cards, and personal care products sell out, we’ll close our Amazon account.
This is the first of several key pieces to our 2010 puzzle. I’ll continue to write about them one at a time as they unfold.
As you know, I’ve had my issues with Amazon in the past. But if it was profitable and we already had the warehouse space, why not keep them both running?
The short answer is that they were both very labor intensive processes for the relatively small percentage of our revenue that they brought in. It just didn’t make sense to either A) teach our employees these processes that aren’t very refined and have high potential for error, or B) invest the time and money necessary to refine them.
The long answer is that there were a lot of factors. Here’s the (rather long) list that I came up with:
- Amazon was a relatively small part of our business. A very unprofitable small part. Consider this: in 2009 Amazon accounted for 22% of the orders we shipped out the door, but only 5.7% of our e-commerce profit.
- The expenses add up. Amazon has a very basic system for quoting shipments. We had a hard time balancing affordable shipping with losing money. Several attempts at finding cheaper shipping alternative failed for one reason or another. Add in the $39.99 monthly fee, 15% per order, plus materials (box, tape, peanuts) and the margin was about half of what the same product would be on Detailed Image.
- When we accepted that we’d trade margins for volume on Amazon, it was under the assumption that we’d be able to use that volume to take market share away from our competitors, we’d be able to secure lower discounts with our vendors and FedEx, and that we’d be able to solicit those customers and entice them to shop on our sites. Amazon was still a relatively low percentage of our sales, so the volume discounts never really came into play. And while we were taking market share away from our competitors, we were indirectly making it impossible for us to lure them over to our sites. To gain the market share we had to undercut our competition and our regular retail prices. If a customer can get it cheaper on Amazon, why would they buy it from us in the future? I suspect this happens to all sellers. There’s no motivation for customers who buy regularly on Amazon to all of a sudden start shopping elsewhere.
- Since the customers aren’t loyal to you or your brand at all (like many are with DI), they were much more difficult do deal with. Not always, but certainly a higher percentage than DI.
- Even when you’re right and a customer is wrong (like when they violate your policy or Amazon’s policy), they always have their “Feedback” hanging over your head. We often spent extra money to please a disgruntled customer so they wouldn’t leave negative feedback. A customer who cares nothing about us at all. That got old. We’d rather focus that attention on the loyal DI customers we do have.
- We had trouble getting the technology to work. Order processing and inventory management were semi-automated, but a far cry from the faster and more accurate system we have for DI. It takes under 5 minutes to run all of DI orders, regardless of volume. It can take 30 minutes or more to run Amazon/TD.
- As we move towards hiring full-time employees in 2010, we didn’t want to devote the resources necessary to improve the Amazon/TD/DI syncing. Nor did we want to devote 75% of our training towards such a small part of our business. DI works great. Almost perfect. The time it would take to get Amazon and TD to that point wasn’t worth it. The programming maintenance is a lot of work on my end. It just doesn’t make sense to have complex systems for a small part of your business when the larger part of your business has simple, scalable systems.
- Speaking of work on my end: as it stood, I did all of the Amazon/TD programming, customer service, and site maintenance. Not that it was a ton of work, but we probably just freed up 15% of my time.
- On Amazon, you’re one crazy seller away from being screwed. We have a few fitness products that move regularly and we profit quite a bit on. The problem is, all it takes is one new business undercutting us and we’ll never sell another one. Maybe they’ll think like we did and try to take market share and gain the customer email addresses. Or, Amazon could pick up the item and undercut us as well. That constant threat is tough. You can’t ever keep inventory high, even if you have the historical sales data. One day the sales could stop in an instant and you’re forced to sell products at a loss or sit on the inventory.
What went wrong with TD?
Still, while this was the right decision for us, I couldn’t help but be a little sad as I was putting up the closing sign and writing the “official” announcement on the TD blog. We had high hopes for TD when it launched. In the end, it didn’t work, and any time something I believe in and work hard on doesn’t work it hurts a little.
We really had a grand vision for TD. We wanted to create this new form of social shopping. We wanted to become an “Amazon for nice things”. And to be honest, that was probably the problem. Not the grand vision per se, but the fact that we were reaching for something that we really couldn’t do correctly with the resources that we had.
We didn’t have enough money to buy the right products or start the right stores. We didn’t have the money or time to invest in marketing the way that it needed to be done. We underestimated how much needed to go into moving into the warehouse, growing DI, and becoming profitable. And ultimately, we weren’t capable of building it the way that it needed to be built, and we learned that the hard way.
The funny thing was, it worked in the beginning. I remember one day, about a month in, when TD had more orders than DI. But we were spending time and money to get those orders. We couldn’t keep up the PPC spend. We couldn’t keep creating content on the blog and the forum. So eventually it took a back seat and essentially became our “Amazon store” that had all Pure Adapt products.
I think up until the middle of this year we held out hope that we’d be expanding into non-detailing e-commerce, but we’ve realized that just isn’t a financially viable option right now (and personally, I’m just not that interested in more e-commerce at the moment, but that’s another story for another day). So there really was no point in keeping it.
And then there was the Commerce with Conscience program and the awesome experience that we had working with the Regional Food Bank of Northeastern New York. It’s hard to kill that program (for now at least), but we’re working on other ways to “give back” in 2010.
Was the decision hard?
Surprisingly, no. I threw it out to my partners at one meeting. Then I went back and ran some numbers to confirm what we suspected. We met again, and within minutes agreed to give it that ax.
Which is what I love about our team. When we killed our client services in February 2008, there were months that the consulting revenue was greater than 50% of our profit. But we looked at the big picture, at what we wanted from our business in the long term, and we made a decision. One that we haven’t regretted. It might not have been the right move for other people if they were in our shoes, but it was right for us. I have a feeling this will be the same way.