The curious case of the giant Amazon Seller that has gone bankrupt
Updated: Sep 3, 2022
The Amazon world has been learning about the financial meltdown of one of the top selling businesses on the site this week.
Pharmapacks, which had annual sales exceeding $500 million, officially filed for bankruptcy last Sunday. Pharmapacks had been top of the Amazon Sellers list for almost a decade, and over the last five years, it was at number one for 1,730 days out of 1,825.
Not only that, but it was also the biggest seller on the Walmart marketplace and sold on other sites in America.
So what has gone so wrong that bankruptcy was the only option for such a giant company? Thompson and Holt senior case manager Laura Holt looks at the figures behind the headlines.
Holt explained: “The ultimate bottom line here is that Pharmapacks is, and always has been, unprofitable. Reports have been quick to highlight the fact that financial records release in September showed a 45 percent gross margin, but that expenses far exceeded that.
“Its 2021 figures highlighted a $112 million loss on $452 million of sales. When they were released, the company said it aimed to be profitable by 2024 by increasing sales by 192 percent in 2021, while only growing expenses by 85 percent.
“While that growth was going on, Pharmapacks relied on institutional capital, and in September last year it revealed plans to go public via a Special Purpose Acquisition Company (SPAC). However, the SPAC merger agreement was terminated in March 2022.
“And ultimately, that signalled the beginning of the end. The company issued a statement claiming that it ‘diligently pursued internal and external financing options’, but that it was ultimately unsuccessful. With no viable alternatives, it added that it was forced to ‘cease operations, liquidate any remaining collateral, and shut down the business’.
“On August 28th, Packable Holdings, the parent company of Pharmapacks, filed for Chapter 11 bankruptcy in the USA.
“Amazon Sellers that raise institutional capital are considered very rare, with some reports estimating the number in the dozens at most. But most of those are cashflow positive and not battling against use operational losses, making Pharmapacks pretty unique.
“Throw in the fact that instead of shifting a focus to private label brands, Pharmapacks continued to be an exclusively fulfilment network, and it all added up to a financial disaster in the end.
“It just goes to show that no matter what the size of your Amazon business or the number of sales that it generates, the basic principles of running a successful business still apply.”
If you have found yourself suspended while selling on Amazon, contact Thompson and Holt for a free LiveChat to get your Seller business back online as quickly as possible