News and industry discussions are swirling around the rumor that Amazon is shaking things up with smaller suppliers and planning to cut all 1P manufacturers under $10M in annual sales. If you read the Bloomberg article or have heard of this elsewhere and you’re concerned, please don’t worry because we have you covered!
Here’s the gist of why you shouldn’t worry: First, there have been no confirmed timelines associated with this change – so it’s possible you’ll never be affected. Second, there are tremendous advantages to a being third-party seller on Amazon, and we can readily help you get set-up. If you already have a hybrid 1P/3P arrangement, we can help you optimize your seller central account and product assortment as a precaution to best mitigate risk.
First, it’s helpful to understand what’s likely driving Amazon’s motivations behind the rumored transition:
Having lots of smaller suppliers introduces risk to Amazon
For Amazon, holding and managing inventory for smaller suppliers with less predictable product movement represents a financial risk. Also, it’s difficult to properly vet, police and remove (when necessary) the smaller suppliers who may be selling counterfeit or otherwise unauthorized product. Similarly, smaller manufacturers who may not have met certain safety or testing standards can clearly become problematic for Amazon. We realize our clients don’t fall into these counterfeit or safety-risk categories, but Amazon may not.
First-party vendors are more high-maintenance for Amazon
As with any business, a company must consider how employees’ time spent generates revenue and constantly evaluate the value of each employee. Considering the time involved in onboarding and managing first-party platform vendors and items (even with scaling and automation efforts), Amazon finds that the arrangement comes at a high cost to serve compared to the realized revenue.
Amazon’s investment into one-day shipping means they must find ways to shift to more profitability elsewhere. Third-party vendors create “easier” profit for Amazon, and better selection for customers
- Without the maintenance mentioned above, Amazon still earns commission on every sale through the 3P platform – so it’s guaranteed earnings at a lower cost to serve.
- Having a large stable of 3P sellers allows Amazon to offer their customers a larger selection, without the heavy burden of directly managing them.
- With Amazon’s “hands off the wheel” price matching algorithm for 1P vendor items, the items and even entire brands may become exposed to a CRaP out situation, which presents a loss for Amazon as well as vendors. Vendors moving to 3P gain the control to price their products more sustainably – creating a win/win for vendors and Amazon.
Here are some advantages of the third-party seller central account:
A seller central account gives you the ability to set your own retail prices (avoid CRaP status), manage your own inventory and marketing. And because you manage your own data, you have access to superior reporting.
There’s a tremendous community of experienced Amazon third-party seller forums that share best practices and help others troubleshoot. You will be amazed at the plethora of resources available.
What you should do
If you don’t already have a seller central account, let us help you set one up. For reference, we have published an FBA playbook that you can request here if you don’t have it already. (Or, if you’re an existing client, reach out to your account manager.)
We can help you create and manage a pricing strategy. Be aware that in your seller account, you will have to manage sales tax remittance in all states.
If you receive communication from Amazon regarding hybrid selling, or selling as a third-party seller on Amazon, we recommend that you don’t respond immediately. Please consult first with your Ideoclick Account Manager. We will help you craft a strategy and response that serves your best interests.
You will find the seller community a very welcoming place and the third-party arrangement an incredible opportunity to continue growing your business, and we look forward to helping you through this transition!