Virginia retailer built RM125 mln business on Amazon, pickleball
LITTLE Alexandria, Virginiabased Amify is the 21st- century version of the thousands of enterprises that thrived around the railroads 150 years ago. Meatpackers, farmers and mailorder retailer Montgomery Ward are just a few examples of businesses that reached customers through the railroads.
Instead of railroads, Amify has latched onto retail supertanker Amazon.com, which has redefined how people today buy just about everything.
Amazon.com (founded and chaired by Washington Post owner Jeff Bezos) just a few days ago became the second-most valuable company in the world, behind Apple.
Amify is one of about three million “third-party sellers” that use the Amazon.com platform to sell their products, paying a 15 per cent commission to Amazon in return. Ethan McAfee, 41, Amify’s founder and sole owner, wants to capitalise on Amazon’s growing dominance and seize what he believes is a rare opportunity.
“We think there is a land rush going on,” McAfee said. “We have all these tail winds pushing us along. We are trying to grow this baby, hitting the accelerator and taking a long-term vision.”
Amify’s niche amounts to a tiny slice of the Amazon juggernaut. The Seattle-based giant sells an estimated US$ 330 billion ( RM125.4 billion) in merchandise each year - about two thirds of which is sold by renters such as Amify.
McAfee expects to generate revenue of US$ 33 million this year on 600,000 orders for Asics shoes, high- end Fender guitars (they expect to sell 8,000 this year), and for binoculars and telescopes made by Vortex Optics, to name a few of his 350 sources.
About 90 per cent of Amify’s revenue comes from being a third-party seller. The rest comes from Amify’s “value add.” That means coaching clients on how to sell more through better-looking Web pages, buying Amazon advertising and combating counterfeiters.
Amify’s secret sauce is knowing which products to make money on, McAfee said. “The higher-price points usually have a higher margin than lowprice points. It’s harder selling a US$ 15 item,” he said, “but with a US$ 100 item, you can probably do it and make a profit. You can use technology to figure out which ones are the best bets.”
Amify’s biggest costs are the goods it buys and then resells on Amazon, and its labor force. The usual profit for a retailer is three to five per cent of gross sales, which would put Amify’s profits in the neighborhood of US$ 1 million this year. McAfee said he is plowing every cent of profit back into the business, adding to its sales team, opening up a second warehouse in Las Vegas to lower shipping costs, and hiring technology people to expand its consulting business.
“We tell brands to work with us, and we will help you sell more products, clean up your Amazon channel and maximise it,” McAfee said of the consulting business. “We help increase their selection and give good products at quality prices. They know they need an Amazon strategy.”
The company has been growing fast and is one of the largest in the third-party Amazon market. Most competitors are smaller mom-and-pops, so Amify uses its relative size to create its own technology, which it sells in its consulting practice.
Amify has a payroll of 42 people, 30 full-timers in the United States and 12 out- sourced full-timers in the Philippines.
Amify has been profitable since McAfee started the business as Pickleball Direct in 2011 in a rented townhouse in Arlington, Virginia. Pickleball is a game played with paddles, similar to tennis and badminton but requiring less running, which makes it popular among retired baby boomers.
McAfee graduated from Virginia Tech with a degree in accounting information systems. He was hired at Baltimore-based asset manager T. Rowe Price, where he helped pick stocks for the firm’s US$ 5 billion science and technology fund starting in 1998, which was near the apex of the dot- com era.
“I was the low person on the totem pole,” he said. But he closely followed the startups that promoted themselves to T. Rowe as they were going to the public markets. He got a close look at many of the winners and losers from that era. He sat in on meetings with some of the biggest technology names, including former eBay founder Pierre Omidyar and its then- chief executive Meg Whitman, and Mark Cuban, who was promoting his start-up Broadcast.com.
“Meg was polished,” he said. “A lot of internet entrepreneurs, as they are today, were young people wearing hoodies. So a polished person really strikes you as impressive.”
His few years at T. Rowe Price in his early 20s helped him develop an eye for spotting the fake companies from the real thing. “We were trying to pick what would be the real businesses that would survive the dot.com explosion that we knew was going to happen,” he said. “The good ones would probably go down 70 per cent, but the bad ones would go down 100 per cent.” He left T. Rowe Price in 2001 and joined a hedge fund in northern Virginia headed by Russ Ramsey, one the founders of Friedman, Billings & Ramsey, an Arlington-based asset manager.
“It was my job to help figure out what we were going to invest in,” McAfee said. “This was 2001, after the internet bubble had burst, and the idea was that there were going to be a whole bunch of internet companies that you could buy for pennies on the dollar. We did pretty good.” — WP-Bloomberg