In Q&A with ABL Advisor, Head of Evaluation Ryan Davis dispels several misconceptions about the risks of FBA seller loans, but also highlights the industry-wide need for more data-driven assessments
BOSTON, May 9, 2022 /PRNewswire/ — Fulfillment by Amazon (FBA) could be the next frontier for asset-based lenders looking to grow their portfolios, but they must grasp the unique challenges and risks of lending to sellers using the commerce channel fast-growing electronics, advise Ryan DavisManaging Director of Valuation Services at Tiger Groupin a Q&A with ABL Advisor.
“The quality of inventory at FBA is excellent,” Davis says in the May 4 feature article. “However, assessing borrower health and orderly net liquidation worth (NOLV) in this space requires enhanced data analytics capabilities. There are also many misconceptions that need to be dispelled.”
In the Q&A (“Tiger’s head of valuation sees top ABL opportunities at Amazon FBA“), Davis underlines the crucial distinction between FBA and the Marketplace model. In the first case, a business sends its inventory to Amazon’s warehouses and Amazon handles all the fulfillment; in the second, a business sells through Amazon but fulfills its own warehouse orders.
“I think a lot of the fears in our industry stem from this market model, where the seller controls their own fulfillment,” Davis explained. “It is absolutely true that these sellers are at substantial risk of being shut down by Amazon during a liquidation because they are more likely to fail to meet Amazon’s rigorous standards for order fulfillment and return in deadlines. We recommend that you approach these agreements with caution.”
But where Tiger sees a huge opportunity for ABLs is Amazon’s FBA model, Davis said. “With FBA, sellers physically send inventory to Amazon warehouses and in doing so, essentially eliminate operational risk,” he notes. “That’s because Amazon uses its own infrastructure, expertise, and people to manage orders and order fulfillment.”
Asked by ABL Advisor about the prevailing misconceptions in the industry, Davis explains that many lenders still believe that Amazon will suspend or cancel the borrower’s account if the borrower over-discounts. “It’s been very well documented that Amazon doesn’t interfere in pricing,” Davis says.
Lenders also asked if manufacturers could prevent FBA sellers from selling below MSRP/MAP. “The answer is ‘no’ – the biggest threat a seller can pose to a reseller is to stop the reseller from buying more,” says Davis, “but they can’t take any punitive action for selling in below a certain price.
It dispels similar concerns that Amazon prohibits doing liquidation sales on FBA (or the use of the term “liquidation”); that the cost of returns jeopardizes the viability of FBA inventory clearance; and that seller accounts will be closed if inventory falls below certain thresholds.
But Davis, who ran the Tiger team that liquidated $20 million of Shoes.com inventory primarily through Amazon FBA, recognizes the unique challenges of managing a liquidation through FBA.
“For traditional retail closeouts, it takes an experienced merchant to know how consumers will react to discounts and sales language,” he says. “An Amazon FBA liquidation is more about objective data and pure price than subjective merchandising and marketing creativity. What you need to make good predictions is lots and lots of data as well as a great analytics engine. analysis and good analysts.”
Amazon’s world is also changing much faster than physical retail, which is why Tiger has been building its predictive analytics model for years, he notes. “Because we assess so many FBA operators, we can keep our finger on the pulse of the latest Amazon policies as well as data trends, allowing us to stay ahead of the curve,” Davis told the publication.
In conclusion, he explains why the FBA business model, with its low fixed costs, is better able to absorb market changes, which makes many of these borrowers quite resilient. “Just like the brick-and-mortar retailers of yesterday, FBA sellers are hungry for the capital they need to grow,” Davis says.
The full article is available at:
Media contacts: At Jaffe Communications: Elisa Krantz, [email protected](908) 789-0700, or Bill Parness, [email protected](732) 673-6852.
Note to media: Ryan Davis is available as a resource for your stories on retail, wholesale and industrial asset valuations.
SOURCE Tiger Group