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How Amazon can help our RMG sector

  • Published at 07:52 pm November 3rd, 2019
A potential partner? Bigstock

Bangladeshi RMG companies can catapult themselves by properly utilizing the platform

Amazon is now one of the world’s largest marketplaces, offering unique opportunities for Bangladeshi businesses. But are they taking proper advantage of them? To my knowledge, they are not.

Apparel products can be found on Amazon in their abundance. But how many of these products have been placed directly by ready-made garment (RMG) factories from Bangladesh and how many have been placed by agents or middlemen? It is my understanding that a great majority of these products have been placed by middlemen -- which means RMG factories are in the process sacrificing a huge cut.

The economics of these transactions go something like this: an RMG factory produces products for about $5, this product is sold to middleman for about $6 and then it is retailed on Amazon for about $9 or even more. 

What is the middleman doing for this $3 mark-up which might otherwise be going into the pocket of the RMG factory? The main things are branding/marketing and order placement. And yet, by fulfilling these services, the middleman is making a significantly larger cut than the factory which made the product in the first place.

How can we change this picture? The good news, actually, is that Amazon is a very user-friendly site which encourages individual entrepreneurs to use it as a platform to grow their business. It offers huge opportunities for RMG factories to develop their business online in a similar way to traditional e-commerce selling.

The main selling opportunity for RMG factories is Fulfilment by Amazon (FBA), an interesting business model which continues to grow in popularity, and for good reason.

At its core, FBA is the same as a traditional e-commerce business. The difference, however, is that instead of a business having to fulfil orders one by one, Amazon stores your products for you as well as picking, packing and shipping them out to customers.

This makes it a lot easier for you to build a business without having to worry about the logistics of warehouses, packaging materials, couriers and so on. With private labelling, RMG factory owners also potentially have the opportunity to build their own brand and website, increasing the value of their business.

RMG factories have been slow to adopt e-commerce, and there are many reasons behind this. Selling online demands skill-sets which many factory owners lack in-house, for instance, inventorying and listing additional products for sale can increase the complexity of a business.

When selling via e-commerce, factory owners also have to work out the logistics of sending products to customers on time. With FBA, however, Amazon Prime members -- of which there is a rapidly growing number -- have most orders shipped to their door in two to five days.

I don’t want to sound here like an advertisement for Amazon, and this is certainly a company that is not without its flaws. However, it is also a means by which a growing number of businesses are reaching a global audience in a timely and convenient manner.

In many ways, one could say it offers entrepreneurs to dip their toe in the water of online selling without taking too much risk, or time. It also has a stranglehold on this particular marketplace, which is why we must consider it in detail.

It is also worth remembering that selling on Amazon is not free. Individual sellers pay $0.99 for each item sold on Amazon, in addition to variable closing fees which range from $0.45 to $1.35. Professional sellers, meanwhile, pay variable closing fees and referral fee percentages ranging from 6% to 25% (an average of 13%, according to latest figures available).

But these fees pale into insignificant when one considers the whopping cut that middlemen effectively take when selling products on behalf of an RMG factory.

With these thoughts in mind, factory owners need to wise up on this issue -- and quickly. If they want to use Amazon as a selling mechanism, they need to think more carefully about how they do it, in order to maximise profits and fulfil their long-term online selling potential.

Mostafiz Uddin is the Managing Director of Denim Expert Limited. He is also the Founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE). He can be reached at [email protected].