Despite initial hopes for equitable e-commerce, many small businesses now face operational and financial challenges within restrictive ecosystems dominated by major players. Justin Floyd, CEO of RedCloud, advocates for Open Commerce technologies that empower SMBs and FMCG sellers to reclaim control over pricing, inventory, and fulfillment, fostering a healthier and more competitive digital marketplace.
LONDON, Nov. 6, 2024 /PRNewswire-PRWeb/ — According to a recent survey, 91% of small business face operational challenges and 93% struggle with financial difficulties, primarily due to inflation, rising cost of goods, services and wages. (1) Major e-commerce giants —controlling over 37.6% of the market— have leveraged their dominance to impose rules that place smaller players at a disadvantage. (2) The promises of e-commerce as an equalizer have failed, with small and medium-sized businesses (SMBs) and distributors increasingly challenged in navigating these dominant platforms. “Restricted access to quality inventory, shrinking margins, and heavy reliance on third-party fulfillment services have pushed many to rethink their strategies”, points out Justin Floyd, Founder and CEO of RedCloud. “The first generation of e-commerce was supposed to bring us a world in which we had more choice, more convenience, lower pricing. That’s not happening.”
“Open Commerce technologies empower SMBs to control pricing, inventory, and fulfillment independently, breaking free from restrictive ecosystems. ‘We create a better market for everyone, lifting all boats,’ says Justin Floyd, CEO of RedCloud.”
E-Commerce Under Siege: Rising Counterfeits and Customer Discontent
Data indicates that the current e-commerce landscape is contributing to several significant issues:
Decline in product Quality and “Junkification”: The internet is flooded with countless identical products featuring the same photos but listed under different names and prices. (3) Third-party sellers are purchasing generic items from manufacturers, rebranding them, and listing them at inflated prices. These listings are often accompanied by generic or fake reviews, misleading consumers into believing they are legitimate user-approved products.Increased Counterfeits: Over 7 million counterfeit products were identified and disposed of in 2023, an increase of one million compared to the previous year. (4) These counterfeits range from luxury bags covered in cadmium paint to makeup containing harmful levels of aluminum or bacteria, both of which can cause rashes, eye infections, and allergic reactions. (5)Customer dissatisfaction: Reports indicate a decline in U.S. customer satisfaction with the largest traditional e-commerce retailer, as shown by the American Customer Satisfaction Index, which monitors over 400 major companies. The retailer’s score fell to 83 out of 100, down from its peak of 88 in 2013. (6)
Squeezing Every Penny with Restrictive Pricing
One of the most harmful practices is exploitative, restrictive pricing, where e-commerce giant’s pressure smaller sellers into restrictive pricing agreements. Retailers must adhere to these agreements, dictating prices they can charge, which often results in razor-thin margins.
Businesses are cornered into accepting lower profitability just to maintain their presence on these platforms. Their algorithm reinforces this by applying incentives or penalties based on how well sellers maintain their stock levels.
This is especially damaging for FMCG sellers, who already operate on thin margins. Any inventory disruptions lead to penalties, further squeezing profits in a fast-paced e-commerce environment.
Additionally, many sellers face restrictions on their ability to sell the same products on competing platforms or through their own websites, being penalized for offering lower prices elsewhere, effectively cornering businesses into relying on them as their primary sales channel at unprofitable terms. (7) “This system forces suppliers to comply, even if it requires offering products at a loss elsewhere to maintain high rankings on the platform”, points out Floyd.
Locked into Fulfilment Services and Inventory Control
Many small businesses depend on these e-commerce platforms not just for selling but also for fulfillment services, such as warehousing, shipping, and customer support. This creates an unhealthy reliance on these platforms because businesses become locked into their ecosystems.
They rely heavily on search engine rankings on the platform’s marketplace and pay fees for every service, often reducing profit margins to nearly unsustainable levels. If they don’t comply with the platform’s pricing or policies, they risk being de-prioritized in search results or penalized in other ways. (7)
Adding to this, inventory control has become another major obstacle. Even when SMBs manage to source inventory from alternative channels, e-commerce platforms may reject it if it doesn’t meet their stringent requirements.
This creates a bottleneck that prevents businesses from diversifying their supply chains or operating independently from the platform. As Floyd notes “Sellers find themselves caught in this complete crossfire. They are forced to buy from the giant’s platform with anti-competitive pricing, restrictive access to quality inventory, and locked into their distribution capabilities. It’s completely one sided.”
A vision for the future
E-commerce doesn’t have to be monopolized by a few giants, disruptive technologies like Open Commerce can reshape the landscape. Open Commerce platforms, such as RedCloud, can empower small and medium-sized businesses (SMBs) to break free from restrictive ecosystems, giving them control over their pricing, inventory, and fulfillment processes.
By decentralizing the digital marketplace, these platforms enable businesses to regain autonomy and avoid the pitfalls of excessive pricing and dependency on third-party services. Floyd highlights: “That’s what Open Commerce stands for: we create a much more accessible and better market for everybody, and when we do that, all the boats rise together. Small businesses are empowered with the tools that they could have only dreamed of 20 years ago.”
About RedCloud
Based in London, UK, RedCloud Technology was founded in 2014 and stands as a “Rebel Alliance,” leading a bold, second-generation e-commerce transformation. Rejecting the high fees of tech giants, RedCloud leverages AI-enabled supply chain solutions to empower smaller businesses to compete with major corporations. Their democratized, platform provides financial visibility, offering a level playing field that breaks free from the dominance of conventional marketplaces. RedCloud embodies a fairer, more inclusive digital commerce future where Davids can stand tall against Goliaths. Visit https://redcloudtechnology.com/.
References:
1. Corcoran, Emily Wavering , et al. “2023 Report on Employer Firms: Findings from the 2022 Small Business Credit Survey.” Small Business Credit Survey (SBCS), 8 Mar. 2023, https://doi.org/10.55350/sbcs-20230308. Accessed 22 Oct. 2024.
2. Chevalier, Stephanie. “U.S. Leading E-Retailers by Market Share 2023 | Statista.” Statista, Statista, 22 May 2024, http://www.statista.com/statistics/274255/market-share-of-the-leading-retailers-in-us-e-commerce/.
3. Herrman, John. “Why Does It Feel like Amazon Is Making Itself Worse?” Intelligencer, 30 Jan. 2023, nymag.com/intelligencer/2023/01/why-does-it-feel-like-amazon-is-making-itself-worse.html.
4. Amazon. Brand Protection Report. Mar. 2024. https://brandservices.amazon.com/progressreport
5. Steele, Chandra. “The Ugly Truth about Amazon Beauty.” PCMAG, PCMag, 17 Sept. 2019, http://www.pcmag.com/opinions/the-ugly-truth-about-amazon-beauty. Accessed 21 Oct. 2024.
6. Coppola, Daniela. “U.S. Customer Satisfaction with Amazon.com from 2000 to 2024.” Statista, http://www.statista.com, 18 Sept. 2024, http://www.statista.com/statistics/185788/us-customer-satisfaction-with-amazon/.
7. Dudley, Renee. “The Amazon Lockdown: How an Unforgiving Algorithm Drives Suppliers to Favor the E-Commerce Giant over Other Retailers.” ProPublica, 26 Apr. 2020, http://www.propublica.org/article/the-amazon-lockdown-how-an-unforgiving-algorithm-drives-suppliers-to-favor-the-e-commerce-giant-over-other-retailers.
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SOURCE RedCloud
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