Amazon’s Vendor Purge – Is It Really A Bad News?

In a huge strategy shift, Amazon is reportedly going to purge the small vendors, reserving the Vendor central only for biggies like P&G, Sony, Lego and such. This news on the vendor purge came as a rude shock to many suppliers when Bloomberg first wrote about it last month. Much has been said and discussed since then and we have now arrived at a point where it is almost confirmed and just waiting for the official news to roll over.

Why is Amazon doing this to the vendors?

“Third-party sellers are kicking our first-party butt. Badly,” – Jeff Bezos wrote in his Annual shareholder letter. This is not just a statement but a thoroughly researched statistical analysis put in a simple layman language. Ask me how?

In 2018, nearly 58% of the total sales that Amazon made came from third-party sellers. In the present year, this is estimated to go even bigger. This made Amazon think about pushing the small vendors below $10M annual sales to the seller central platform.

  1. Seller central is more profitable to Amazon

It is hard to believe but Amazon is not making as much as we would like to hear from the Vendor central. Amazon has to hire more vendor managers and spend more on the logistics – for fulfillment and shipping over the first party products. The cost will go further once Amazon implements its One-Day shipping program.

Seller central on the other hand is relatively easy in terms of logistics and Amazon gets a share on every single sale that is made.

 

  1. Small Vendors are posing a risk

With the increase in competition, there is a rapid increase in the counterfeit/ unauthorized products as well. With so many small vendors, Amazon is finding it difficult to properly vet, inspect and dismiss the products that do not meet the quality standards. This is directly or indirectly impacting the business model and affects customer satisfaction. Amazon had stopped issuing POs to thousands of such small vendors a few weeks back and kept them on hold until they reviewed their products.

 

  1. Third Party is less demanding

This might sound surprising, but the third party sellers are smarter – they put in extra efforts and are self-sufficient with their own pricing, forecasting, marketing, and shipping. They strive to drive more traffic to the marketplace and work their butts to give exemplary customer service(!) all by themselves.

At the end of the day, Amazon just gets a cut out of every sale by simply lending their marketplace and grows along with the millions of other sellers.

On the other hand, Vendor central is a lot of work. They need to demand forecast, negotiate, buy, manage the inventory, take care of the logistics and provide customer support as well. Amazon is simply unable to allocate that kind of human resources of late. Also often, Amazon sells the products at loss in an attempt to win the “Buy Box”. There are still tons of vendor manager posts unfilled since 2018 and that explains why the first party business growing double digits every quarter is long gone.

Above all, the whole concept of doing the first party sales is against the company’s primary focus of being a marketplace and not as a retailer.

 

So what’s going to happen to the small vendors?

I would say it is a welcome move for the vendors for I think the seller central is in its best shape now than ever before. If you are a vendor do not feel threatened over this sudden policy change. The transition to the seller central is going to be more rewarding!

  • Far superior reporting
  • Control over the pricing
  • Inventory control
  • No chargebacks

If you are a Private Label seller and have got the Brand Registry done, you have access to Enhanced Brand Content which is pretty much similar to A+ content in the Vendor central and you can also create your storefront page. In addition, there is this newly introduced Brand Analytics tool which is very similar to the Retail Analytics dashboard in vendor central but with limited metrics.

Coming to the campaigns, in seller central, you have the Sponsored products and sponsored brands ads. While product display ads are still not in the third party platform, there is nothing much to miss on that front as you can make the most out of these two.

With the Amazon’s new selling plan, you can reach customers in 10 countries for just $39.99 per month. Isn’t that a good news?

How to prepare yourself for the transition?

  1. Set up a seller central account
  2. Consider the FBA program to enjoy the Prime benefits
  3. Work out on product profitability and re-price accordingly
  4. Optimize your listings as there is going to be more competition now
  5. Redefine your marketing strategy

Take Away

Never put all the eggs in one basket. If you haven’t explored other marketplaces, it is high time you stop relying fully on Amazon. Walmart, ETSY, Ebay, and Opensky are some of the other potential marketplaces where you can list your products and expand your business. And, if you were ever stuck with something and find all this transition so overwhelming and challenging, please write to us – support@fabongo.com. We will help you sail through this vendor purge if in case it becomes a reality and be the change maker in your lives.