What’s going on, what is assumed, and what might it mean for your Amazon sales?
We started Toucan for a simple reason: Amazon has untold potential for sales growth, but many brands need help grappling with the technical ins and outs to make their dreams a reality. Navigating the ever-evolving landscape allows us to help our clients tackle worrisome changes and make critical decisions in real time.
This week, vendors are facing one of the most unexpected, confusing, and uncertain growth points in Amazon’s history. There are few clear answers, much speculation, and hundreds upon thousands of brands asking two critical questions:
What is happening? And what does that mean for me?
In this article, we break down what we know, what we can assume, and what it might mean for brands like yours.
What do we know?
Reporting from Forbes last night, and follow-up this morning from eCommerce Bytes, reveal that Amazon suspended certain dropship (Direct Fulfillment) accounts last week. Yesterday morning (Monday 3/4), many wholesale vendors missed the regular purchase orders (PO’s) they expect. This impacted thousands of businesses and possibly millions of dollars in sales. Amazon’s response called the issue temporary, based on “business and inventory management reasons.”
Amazon’s dual-system has always given brands a choice for how to best engage in the online marketplace. The wholesale option via Vendor Central includes Amazon-supported perks like Prime shipping and marketing, but opting to set up a store in Seller Central offers a brand more customer insights. It does have a greater burden to handle inventory and fulfillment, but many brands preferred this option.
And it’s an option that seems to be changing.
Back in December 2018, there were reports and rumors (first in Recode, followed by DigiDay) that Amazon would move low-volume vendors to a third-party selling model. These early projections speculated that Amazon was actively consolidating its system to a single model – One Vendor – within the first half of 2019.
What do we assume?
It’s worth noting that Amazon’s moves could be about streamlining efficiencies, and not necessarily about consolidation. But, the rumors about One Vendor — and the evidence building within the last 48 hours — support the belief that Amazon could be consolidating its control. This will impact large and small brands alike. Some reports suggest the change is to improve customer experience and regulate quality in the marketplace. For example, eliminating knockoff or imitation products in specific industries like electronics will bolster consumer confidence.
Regardless of the reason, we can project that this type of consolidation will result in less control for brands. With new terms, Amazon can dictate based on certain factors (e.g., SKU) whether certain products must be sold wholesale or as third-party, direct to consumer.
Smaller, niche brands who chose to be third-party retailers may be forced to switch to a wholesale model that strips them of price-control. And, inadvertently, they could lose access to the customer insights that drove them to take on the burden of third-party selling in the first place.
Plus, wholesale selling could bring hassles, including a percentage co-op fee paid directly to Amazon. For larger, name-brand products forced into wholesale, this fee will provide Amazon additional revenue, for almost no additional work. This is despite the trend we’ve seen in Amazon’s continued reduction of management and support for wholesale brands. Essentially, some sellers forced to wholesale will still need to sustain nearly-independent business structures anyways.
There is one glimmer of optimism from DigiDay. Consolidation to wholesale, they speculate, would come with an added perk of ARA Premium (their customer analytics tool). This premium tool, if offered for free, could provide helpful insights and data vendors could use to improve their efficiencies.
What might it mean for your brand?
If the assumptions about One Vendor are to be believed, it forces a debate. Sellers must reassess their strategies w/r/t Amazon sales and their proverbial fork in the road.
One Vendor could eliminate a brand’s choice by forcing them into a single model on Amazon. We predict many larger brands turning to comprehensive, multi-channel solutions. For those brands who do stay, however, it will become even more critical to continually assess and reassess strategy in real-time. Three questions guide this thinking:
- Is Amazon still right for us?
- If so, how can we maximize our profits and drive up ROI within these new and changing rules?
- Are we equipped to continue making these decisions, or do we need additional guidance as the platform continues to evolve?
Amazon has never had a magic formula, and while they continue to officially deny the existence of One Vendor, we can only speculate what each new update will mean in the big picture. What we do know for sure is that hundreds, if not thousands, of brands missed PO’s on Monday morning. With no clarity indicating if or when the next PO might come, brands are quickly seeking answers.
If your brand needs help navigating these changes, send us an email. We are more than happy to listen and discuss options for you to move forward. You’re not alone.
— Eric Mindel & Freddie Sexton
Phone: (704) 412-8489