Amazon’s business model allows niche retailers to flourish via FT

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Al Shariat, then a project manager working at Canary Wharf in London, could see no way of persuading supermarket executives that he knew better than they did how to sell coconuts, so he logged on to Amazon and took a chance on his convictions.

The online retailer allows anyone to add to the 150m items already listed in its catalogue. Mr Shariat, whose fascination with tropical agriculture began when he was working on a microfinance scheme for the UN, added pages for coconut-based products including water, sugar, vinegar, oil and jam — and waited to see whether anyone would buy.

“At first, every order that came through, I would write a personal note for the customer to say thanks,” he said. Two years later, the Coconut Merchant’s products are among the top-selling grocery items on Amazon’s websites in France, Italy and Spain.

To many small business owners, Amazon is a predator that has already eaten alive independent booksellers and may soon be coming for their bike, hardware or hi-fi shops.

But for Mr Shariat and thousands of others, it has allowed a niche business that would have withered on the high street to take root and flourish.

“If you want to sell in a supermarket, you have to convince a buyer that putting you on the shelf will make them more money than the existing brand,” he said from his warehouse in Mitcham, south-west London, where he employs 15 people. “On the internet there are no gatekeepers.”

The trade-off, some small businesses say, is that there is also little control. “Sellers hate the platforms,” said one former merchant who traded online for eight years. “They can make snap decisions that make your products less prominent, or they change the rules, and you’ve got no comeback. Usually you can see why they’ve done it and it makes sense for customers, but for traders it can be hard.”

Amazon generates enough custom to keep two of the Coconut Merchant’s employees busy, according to a survey the US company commissioned. Its early online success generated much of its other business, including supply contracts with big supermarkets.

Some Amazon-based traders are much bigger, hiring 100 or more staff to deal with millions of orders a year. The survey found that, across the UK, independent businesses employed 74,000 people to handle the sales they generated on Amazon Marketplace.

That total, which is not far off the 91,500 permanent staff employed by John Lewis, does not include Amazon’s own workers or those hired by delivery companies.

It also leaves out marketplaces other than Amazon that also give traders a way to reach millions of customers without investing in a shop or an expensive marketing campaign.

Ebay, which pioneered the idea of connecting buyers and sellers online, has thousands of sellers serving the UK.

Notonthehighstreet.com, which describes itself as a “curated marketplace” of about 5,000 sellers of quirky gifts, this week raised £21m from investors.

Amazon is unusual, however, in running a marketplace where it is the biggest seller and in allowing the rival merchants who generate almost half the website’s orders to use not only its online listings but also its physical infrastructure.

In August the company announced it was building two more UK warehouses capable of handling millions of orders a year, taking the total to 14.

It has established its own delivery services in areas where large concentrations of customers live, and can deliver some orders an hour or two after they are placed.

Like the supermarkets and out-of-town retail parks that spread across Britain in the 1980s and 1990s, these services create a more convenient way to shop that analysts expect will deprive high streets of customers and hurt independent stores.

But for some it is an opportunity. “We were very small, but we had products people liked,” Mr Shariat said. “And on the internet, the smallest company can be big enough to challenge the incumbents.”

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