The Continuing Vendor Central Turmoil

This past week, reports surfaced confirming what we have long expected – Amazon intends to push many brands away from selling first-party direct to Amazon and instead have them sell on the third-party Marketplace. In fact, the news was so significant that Dave Clark, Amazon SVP of Operations, tweeted publicly about the reports, a rare occurrence from senior Amazon officials.

In the last two years, we’ve seen Amazon evolve from being a retailer to a marketplace- or from a store to a mall. The news this week just confirms what we’ve been hearing recently in our conversations and work with brands.

No Longer a Retailer

Amazon has been pushing smaller brands - those selling less than $10 million a month - to the 3rd party marketplace for a long time. Amazon has been doing this by increasing fees and through disruptions in their regular product purchasing from these brands. This has been an ongoing issue for brands selling directly to Amazon via the first-party Vendor Central platform. This decision is driven by Amazon’s drive to increase profitability of their core business.

When a brand sells directly to Amazon, the e-commerce behemoth must hold inventory of that brand’s products; however, when the brand sells on the Marketplace, Amazon has no inventory exposure and takes a simple 15% fee for access to their shoppers. In fact, that is why Amazon has responded to these recent news stories with denials that anything is changing – things aren’t changing. Amazon is continuing the already in-progress change in their business model away from first-party selling.

Next Steps for Brands

Some brands selling first-party to Amazon have already been forced into the Marketplace. For most other brands, the change is coming as well. Many brands feel that figuring out how to become a third-party seller on the Marketplace is the only way to prepare for this expected change. The problem is, growing sales on the Marketplace is hard. To do it well, a brand must handle product marketing, keyword advertising, in-transit distribution, optimizing between Fulfilled by Amazon and Seller Fulfilled Prime, claim mitigation, performance notifications, 24-hour customer service requests, data analysis, IP enforcement, and sales tax collection in 30+ states.

In our opinion, finding an established third party seller is the best long-term strategy for brands who want to transition away from first-party Amazon sales. Using a third-party retail partner allows brands to transition away from first-party selling with a trusted partner and expert in the field. For some brands, the focus is accurate pricing on the Amazon platform. For other brands, they need to optimize their product assortment to make selling on the Marketplace profitable. Whatever the issue facing a brand in this change, a good retailing partner will be there to mitigate risk, maximize sales, and drive long-term success on the Amazon platform.