What Q4 Earnings Mean for Manufacturers – What Amazon Will do with Pillpack
Written by Andrea Leigh, VP of Strategy and Insights
In the News
Amazon announced their Q2 earnings, and the big story is that they posted their largest quarterly profit ($2.5B)…ever. Wall street is happy, as they’ve now been profitable for 13 straight quarters – thanks in large part to their ad business (growing at 100% Y/Y), AWS, and the “squeeze” they’ve been putting on all of you, manufacturers. (Keep that in mind when they ask for terms improvements this fall!) External hiring has slowed, as they have consolidated their Retail and Third-Party teams and are filling open roles with internal transfers. They also indicated a slowdown in fulfillment center expansion, signaling growth fueled by third-party sales. Expect greater integration and consolidation across the retail and third-party platforms, teams, and strategy and increased reliance on third-party for inventory (see “Word on the Street” below).
Amazon acquired the online pharmacy, Pillpack, for just under $1B. In addition to prescription pharma being a robust, $450B/year business opportunity, this move will also enable Amazon to steal repeat foot traffic from the Walgreens, Rite Aid, and CVSs of the world…driving down the value of these retailers and making them prime potential future acquisitions. Each drugstore chain represents a large number of small-format, potential pick-up points for grocery products and/or AmazonGo stores. This will also give them a ready market for new private label products typically sold at pharmacies, which they’ve already begun developing. And you can bet there will be some special prescription service for Prime customers.
Word on the Street
Can Amazon turn off your hybrid selling account?The short answer is, yes. The Product Availability Policy for Manufacturers (commonly known as the Manufacturer on Amazon policy or MOA), has recently changed (changed portion is underlined): “If you are a manufacturer and your products are sold by any other retailers or distributors, we expect you to offer Amazon Retail the option to source those products at competitive terms for sale as Retail items only.” Amazon is applying this policy inconsistently across categories – right now, hard goods categories seem to be getting hit the worst. If your behaviors flag Amazon’s attention – such as holding back portions of your assortment for FBA-only (vs. retail), using FBA to drive Amazon’s retail prices down, or trying to move your business from retail to FBA – you’re at risk for a review.
What we learned from Prime Day (well, when Amazon’s site was up, that is)… It isn’t enough to run a deep (think 30%+ off) discount anymore – you have to drive external traffic to it, too. The deals that performed best across our client base all included some traffic-driving activity on the client’s side, such as promotion through social channels, AAP, AMG, and/or other advertising. Many clients had deals shut off due to profit or inventory concerns, or because Amazon did some price matching leading up to the event (rendering the deal invalid). Takeaways for next year: Given the new-for-2018 item-level participation fees, go big on a few items, and have an external marketing plan. Missed the cutoff or don’t want to fork up the fees? Use a Vendor Powered Coupon to improve conversion.
What’s Coming Up
Holiday, that’s what! It’s time to start thinking about your deal calendar, internal resourcing to support more vigilance in everything from auditing detail pages to monitoring chargebacks (expect an increase) and making sure your warehouses ship products quickly and correctly to Amazon. The window is also closing to open and generate enough credibility with your seller account in time for holiday, so set up those FBA accounts now! (Amazon doesn’t usually allow brand new sellers to sell product during Q4).
Annual Negotiations…Starting in September, Amazon will begin sending out their annual terms requests. Here’s how to not get eaten alive. Need to talk it out? Clients, please schedule a “negotiations consult” with your Account Manager.
New Items? – Now is the time to set them up to get the flywheel going before Q4. Contact your account manager and we can get the new assortment rolling.