Amazon Suppliers Panic Amid Purge Aimed at Boosting Profits
(Bloomberg) – Amazon.com Inc. has abruptly stopped buying products from many of its wholesalers, sowing panic.
The company is encouraging vendors to instead sell directly to consumers on its marketplace. Amazon makes more money that way by offloading the cost of purchasing, storing and shipping products. Meanwhile, Amazon can charge suppliers for these services and take a commission on each transaction, which is much less risky than buying goods outright.
Amazon is determined to boost profits at the core e-commerce business, even if that means disrupting relationships with longtime suppliers. Because many suppliers source products from manufacturers months in advance, they’ll have to quickly shift their sales tactics if the expected Amazon orders don’t come in.
“If you’re heavily reliant on Amazon, which a lot of these vendors are, you’re in a lot of trouble,” said Dan Brownsher, Chief Executive Officer of Channel Key, a Las Vegas e-commerce consulting business with more than 50 clients that sell more than $100 million of goods on Amazon annually. “If this goes on, it can put people out of business.”
Brownsher is among several consultants who said Amazon’s move has affected thousands of vendors.
Pushing more suppliers onto the marketplace is part of Amazon’s larger effort to reduce overhead by getting more suppliers to use an automated self-service system that requires no input from Amazon managers.
“We regularly review our selling partner relationships and may make changes when we see an opportunity to provide customers with improved selection, value and convenience,” Amazon said in an emailed statement, declining to answer specific questions about the action.
The abrupt cancellation of orders prompted panic this week at the ShopTalk retail conference that drew more than 8,000 retailers, brands and consultants to Las Vegas. Some attendees said Amazon stopped submitting routine orders last week for a variety of products, often without explanation. The drought continued this week, affecting more vendors and leaving them frustrated about the lack of communication from Amazon.
One vendor who has been selling products to Amazon for five years said he got a canned response when he inquired why his routine weekly purchase order never came through. The response gave him no clarity about his standing as a vendor, he said.
In recent years, Amazon has increasingly prioritized its marketplace. More than half of all products sold on Amazon in 2018 came from marketplace merchants, and revenue providing services to those merchants is growing at double the pace of revenue from the online store. Based on the target valuation of Amazon, the marketplace business is worth about $250 billion, according to Evercore ISI analyst Anthony DiClemente, more than double the value of the online retail business.
Online marketplaces can offer greater selection than even the biggest of stores. Walmart Inc., Target Corp. and Best Buy Co. are all copying Amazon’s marketplace model to increase online sales. Amazon will generate e-commerce revenue of $317 billion this year, representing 52.4 percent of all online sales in the U.S., according to EMarketer Inc.
“If you’re already drawing eyeballs to your website, you want to have all of the products your customers are looking for,” said Frank Poore, CEO of CommerceHub, which sells online marketplace software. “You have to have a bigger assortment online than you do in the store.”
Now more Amazon vendors will be forced to sell on the marketplace or risk getting stuck with unsold inventory, said Will Land, CEO of Marketplace Valet, an e-commerce logistics provider and consulting firm in Riverside, California.
“When you get used to those big checks,” he said, “it’s hard to pull away.”
Seller_sUfyk7ajzPzny
There’s been a good deal of discussion about this lately:
There are other threads about this topic in the various Amazon Seller Forums as well, and a lot of talk in other venues, so thank you for tipping us to the Bloomberg article; something that Freedom Pet posted last December seems to me to offer excellent advice:
Seller_3N7yVnTXPzLkL
Some people with a simple view of free markets will view this as a plus.
Amazon is no longer going to dictate the prices paid to vendors and set the price levels.
Since Bloomberg’s reporters rarely know anything about the companies they write about, they are reporting what nervous vendors are telling them
How the numbers actually work out is much more complex than they understand. These vendors will not be paying MDF to Amazon which has been around 14%. It is likely that some will come out ahead.
I suspect the core message in the varying recent policy shifts is an attempt to reduce the vulnerability of Amazon profits to transportation costs.
They have enough experience with their own logistics to understand where the limits of the operation are.
They have enough retail experience to know what they can count on in terms of customer pickup, and it will be interesting to see just who is booted out of Vendor Central when the final reviews are completed.
And whether some of them become suppliers to the grocery chain.
Seller_zKTrxv4pf5Ywe
I find it interesting that in the last 6 months I’ve heard on several occasions of hybrid FBA/ Vendor Sellers being forced into vendor only (the exact opposite of what this article describes). Bloomberg’s pool of sellers probably isn’t big enough to call this a wide sweeping new strategy; they just need more crap to write about on the big companies.
Seller_3N7yVnTXPzLkL
Here we sit discussing a company which is driven by the numbers, with no numbers other than our own.
We can generalize on the big issues facing Amazon, and come close to understanding their motivation. But we cannot have a clue why any action against a seller or vendor or group thereof are without someone sharing numbers.
This is not the first time Amazon is going to reduce the amount of inventory they buy and stock.
Seller_IhnvbCacmJlG0
I read an article at least a month ago along these lines, but its emphasis was on low-dollar oversize items (like cases of bottled water), saying that Amazon was now arranging for the vendors to ship direct from their warehouses rather than Amazon having to store/ship.
Seller_Igfx1xWHC9oCv
Folks, be mindful that rumors are just rumors,
As of today, many vendors are having their accounts back, nothing on their ASINs, co-op allowance & contract was affected, So last week’s massive ban was just a trolling move (in typical Amazon fashion) from their business team to re-evaluate profitability on most items they put on POs
All this “one vendor” program linked to the bans from last week is proven to be rubbish.
Maybe they will implement this program someday eventually, but too many vendors here took rumors over the actual development from actual vendor is kind depressing. If this is a permanent ban, don’t you think they would just block our access from our VC account instead of just disable our offering for the time being?
This ban is utterly inhuman & made a lot business suffer(our business included) I agree, but spreading rumors saying this is a permanent ban is way overboard.
Seller_UWUiBvmRG1TYb
That does make sense, and it makes my post look a little over-the-top.
That being said, I don’t think it’s all bottled water vendors (or whatever) that we’ve been seeing post here.
Seller_RyFOkTgFH988p
I am an Amazon Market Place seller and was for some time an Amazon Vendor at the same time. My previous work experience was selling to corporate users (Tech, Finance, etc.) and big box stores (Krogers, Rite-Aid,etc). I found the larger the customer the more they controlled your price and your inventory. Success in that world required just in time inventory and specific windows in which to deliver the inventory.
The reward vs risk was tremendous in that there was very steady logistics if seller pre-planned the incoming inventory to match the delivery windows. The risk is that to do so, at least 1 month of inventory needed to be on the road or pre-delivered to ensure the delivery window.
This thread shows the risk if the next order(s) disappear. In the corporate world you can agree to contract terms for both parties including the exit strategy by the customer so the seller is not left with an inventory burden. Not the case with Amazon.
Even in the new world of e-commerce, some things haven’t changed.
Too often the seller manages his business based upon the highest volume customers and the buyer leverages other competing sellers to drive the best value for the customer. It all too often ends with the seller being stuck with the last order not being delivered due to a vendor or product switch, plus a business built to meeting a single customer’s service requirements.
The more a seller relies on a single customer or way of doing business, the more the risk.
Seller_Xpktjspu2oF5C
That sounds like double talk for they will spend more money on sponsored ads because their business is now failing. More product going into FBA = more profit.
Seller_TooxN03jE4bTC
If you think about it, why not? No different than vendors selling inventory on Amazon that they turn around and buy from someone else. Why invest your own capital in inventory when you can let others sell it and rake in 35% on the sale without having to invest any money? The problems will come as more sites develop this same philosophy.
