According to the news report by Bloomberg, Amazon.com Inc. has suddenly stopped purchasing products from a number of its wholesalers. This has led to panic among its suppliers.
Instead, the company is now encouraging more of its vendors to sell their products directly to the end customers via Amazon.com’s marketplace. The reason is because the online retail giant makes more money since it does not have to incur the extra costs of buying, storing and shipping their products.
Added to lowered costs, Amazon can also then charge these vendors for its services and get a commission for each sale made on its platform. This strategy is less risky for the retailer than it buying the goods and then re-selling them to its customers.
Amazon is focused on boosting its own profits for its e-commerce business, which is the company’s main money-maker. And it is willing to do so even if it disrupts relationships with suppliers that have been supplying it with products for a long time.
The challenge that suppliers are facing is that they order their products from manufacturers months in advance. Which means that they will have to change their sales tactics really quickly if Amazon does not continue ordering from them.
According to Channel Key’s Chief Executive Officer Dan Brownsher, if a company is very reliant on Amazon for its business, then it could be in a lot of trouble. Channel Key is a Las Vegas-based e-commerce consulting firm that has more than 50 clients that sell Amazon over $100 million worth of products every year. Brownsher states that if Amazon continues to deny orders to these vendors, these small companies could go out of business.
Brownsher is not the only one to have commented on Amazon’s latest tactics. Many other consultants have also stated that the retail giant’s strategy has negatively impacted thousands of vendors.
Amazon has been pushing more suppliers to use its automated self-service system. This way, the company will save on massive overhead costs and would not require any inputs from Amazon’s managers.
And while the company declined to answer specific questions about its actions, the company did issue an e-mailed statement, saying Amazon regularly reviewed its partnerships with its sellers and made changes when there was an opportunity to give its customers improved selections, values and more convenience.
This week, at the Shop Talk retail conference that was attended by more than 8000 brands, retailers as well as consultants, there was a sense of panic due to what Amazon had done. Some of the conference attendees stated that the online retail giant had stopped putting in its regular orders the previous week for numerous products, many times without any explanation.
The lack of orders continued this week too, affecting even more vendors. It also left the company’s suppliers feeling frustrated that there had been no communication from Amazon about this move.
In the last few years, Amazon has shifted its priority to promote its own marketplace. In fact, in 2018, more than 50% of the products sold on Amazon.com came from the merchants on the company’s marketplace. And revenue from marketplace services is growing twice as fast as revenue from its online store.
According to Anthony DiClemente, Evercore ISI’s analyst, based on the current valuation of Amazon, its marketplace is now worth around $250 billion. This is over double the value of the company’s older online retail business.
Online marketplaces offer customers a selection of products that no single store – no matter how big – can offer. Because of this, competitors such as Walmart Inc., Best Buy Co. and Target Corp. all now copying the model created by Amazon.