Following the news last week that Amazon appear to be pushing Amazon Vendors to become Amazon marketplace sellers, reports have confirmed the rumours albeit with a twist – Amazon screwed up a little and in the process of cancelling their regular purchase orders to Amazon Vendors who they’re dumping, they may have also cancelled orders to Amazon Vendors who they want to keep.
The short story is that Amazon have carried out a major review of businesses they buy direct from and sell as Amazon the retailer and figure out that everyone (except perhaps the supplier) would be better off if they were marketplace sellers.
Amazon have been heading for this review for some time – their marketplace business through Amazon Merchants is growing at a faster rate than Amazon Retail with Amazon Vendors and merchants now supply over 50% of the products for sale on Amazon. For Amazon Retail to continue to grow at the same pace is prohibitively expensive and not very profitable – Amazon reportedly make about 5% on direct sales and about 10% after costs on products sold by merchants. It’s not actually in their interest to sell directly. If that wasn’t enough, the writing was on the wall ever since Amazon chopped the legs off smaller suppliers with the closure of Amazon Vendor Express in March last year.
Amazon would only have a pressing requirement to sell directly when they need to open up new categories or to fill in holes in their inventory where merchants are picking up the slack. This combined with the growth of Amazon Own Brands (products commissioned and manufactured under an Amazon White Label) and Amazon Exclusives (products from a 3rd party brand but only sold on Amazon) mean that smaller vendors have already been cannibalised or the likelihood is that if Amazon aren’t selling a similar product that their merchants are. Why carry on buying and selling at 5% margins when you can halve the work and double the revenue by getting the Vendor to sell direct?
Amazon have also been beefing up tools for merchants in Seller Central which previously were only available to Amazon Vendors. Just last month Amazon rolled their Brand Analytics tool into Seller Central whereas previously it was only available to Vendors. Through Brand Registry Amazon are also providing manufacturers and brands with the tools they may wish to use to control their brand experience on the marketplace.
What this means for merchants is that you may see even more Brands becoming active with Amazon Brand Registry and wishing to control the supply of goods on their marketplace. All the time that Amazon were acting as the retailer they could sit back and leave Amazon to control the buying experience, but if they’re selling direct they may wish to limit competition to their authorised distributors and authorised retailers and if that’s not you then you may find yourself looking for new marketplaces to trade on, brand gating is certainly a concern.
If you are currently an Amazon Vendor and not already operating a hybrid approach to Amazon and already additionally selling as an Amazon Merchant then it’s time to open an Amazon Seller Central account and prepare to do so. No matter how big a Vendor you are, at some time in the future, if not in this round of Vendor cuts, Amazon may decide that it’s no longer profitable to stock your goods and insist that you also start to sell as an Amazon Merchant.
4 Responses
This sounds like a great idea, because a couple of our suppliers also supply Amazon – so does this mean Amazon will no longer buy that range of products because they make just as much from us selling it on their platform? Or have I read this completely wrong.
That’s why they want you all to become Seller Fulfilled Prime Sellers on there.
Then they can still offer it as if its them and divert a sale to you. So still looking good without any overheads such as logistics in storage or dispatching.
But if you offer free shipping instead of prime they cant do it. As their prime customers want that extra stuff.
Amazon have never made a profit as a retailer. This is them backing out of a loss making business
I think all large digital monopolists, be it Facebook, Twitter, Google or Amazon, are coming under increased scrutiny from Society and certainly in Amazon’s case currently the EU are investigating their dominant market position.
Bear in mind that Amazon has also upset a lot of governments with previously very lacks controls by allowing foreign companies to ship and store goods in Amazon warehouses without proving that you are VAT compliant in the location Country of the Amazon warehouse, which you automatically have to be, the moment you allow foreign companies to store goods there.
It’s also very hard to make the case that aren’t abusing this position when your retailing at a zero percent profit margin (as Amazon retail makes no money), and that your on the side of small businesses when every other retailer using you has to pay Amazon 15 percent, plus they have to make a profit on their sales otherwise your go out of business.
By extracting themselves from wearing these two hats (marketplace and retailer), then it’s alot harder to claim that they are abusing their market position as the same rules apply to all, i.e. everybody just pays Amazon 15 percent, be that Brand owner or Firms that the Brand owner sales to.