In a huge strategy shift, Amazon is reportedly going to purge small vendors, reserving Vendor central only for biggies like P&G, Sony, Lego, and other massive names. 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 finalised and everyone is waiting for the official news to roll over.
Why is Amazon doing this to 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 simple layman’s language. Ask me how?
In 2018, nearly 58% of Amazon’s total sales came from third-party sellers. In the present year, this is estimated to go even higher. This made Amazon think about pushing small vendors below $10M in annual sales to the seller central platform.
- Seller central is more profitable for 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 the fulfilment and shipping of 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 of every single sale that is made.
- Small Vendors are posing a risk
With the increase in competition, there is a rapid increase in 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 directly or indirectly impacts 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.
- The third Party is less demanding
This might sound surprising, but the third-party sellers are smarter – they put in extra effort and are self-sufficient with their own pricing, forecasting, marketing, and shipping. They strive to drive more traffic to the marketplace and provide exemplary customer service.
Ultimately, Amazon gets a cut out of every sale by simply lending their marketplace and growing along with the millions of other sellers.
Vendor Central, on the other hand, is a lot of work. They need to demand forecast, negotiate, buy, manage inventory, take care of logistics, and provide customer support. Amazon is simply unable to allocate that kind of human resources. Also, Amazon sells products at loss, in an attempt to win the “Buy Box” at times. There are tons of vendor manager posts unfilled since 2018 and that explains why first-party businesses growing double digits every quarter is long gone.
So what’s going to happen to the small vendors?
I would say it is a welcome move for vendors as seller central is in its best shape now than ever before. If you are a vendor, do not feel threatened by the sudden policy change. The transition to seller central is going to be rewarding.
- Far superior reporting
- Control over pricing
- Inventory control
- No chargebacks
If you are a Private Label seller and have got Brand Registry done, you have access to Enhanced Brand Content, which is pretty much similar to A+ content in Vendor central, and you can also create your storefront page. In addition, there is a new Brand Analytics tool which is very similar to the Retail Analytics dashboard in vendor central but with limited metrics.
Coming to campaigns, in seller central, you have sponsored products and sponsored brand ads. While product display ads are still not on the third-party platform, there is not much your missing out on as you can make the most out of these two.
With Amazon’s new selling plan, you can reach customers in 10 countries for just $39.99 per month. Isn’t that good news?
How to prepare yourself for the transition?
- Set up a seller central account
- Consider the FBA program to enjoy Prime benefits
- Work out on product profitability and re-price accordingly
- Optimize your listings as there is going to be more competition now
- Redefine your marketing strategy
Never put all the eggs in one basket. If you haven’t explored other marketplaces, it is high time you stop relying only on Amazon. Walmart, ETSY, eBay, and Opensky are great marketplaces where you can list your products and expand your business.
If you need any professional help for your Amazon store management, get in touch with us.
BIE is a Vancouver, British Columbia-based agency providing human resources to manage all things Amazon.