Talk of Amazon’s imminent vendor purge sent a ripple of anxiety through a packed room at Outdoor Retailer on Wednesday.
In a seminar entitled “Amazon’s Major Changes This Year: Are You Ready?” Scott Ohsman, a partner at e-commerce consulting firm BuyBox Experts hit on major pain points for the platform’s brands and vendors.
Rumblings of a “Vendor Central purge” have grown louder in recent months, and according to Ohsman, the shift is imminent.
Vendor Central is the portal first-party (1P) vendors use to manage their wholesale businesses on Amazon. The e-tailer owns the vendors’ inventory and deals with selling and fulfillment.
This model sits in contrast with the 3P, or third-party, seller model, in which brands and vendors utilize the Seller Central platform to manage their own sales. Those orders may be fulfilled by Amazon (which houses vendor products in their warehouses for a fee), or they may be fulfilled by the vendors themselves.
According to Ohsman, Amazon plans to cut 83 percent of vendors across all categories from Vendor Central, and will stop placing purchase orders without warning. For many, the shift has already happened.
When asked about the impetus for the change, Ohsman pointed first to consumer confidence.
Amazon has “created a mess,” he told Sourcing Journal, with more than 600 million products available across the site. Overseeing the authenticity and origins of those products has become nearly impossible, he said, and “the consumer trust is what’s hurting them.”
Despite the company’s reticence to address rampant issues with counterfeiting and illegitimate sellers (forcing brands, for the most part, to tackle those issues on their own), Ohsman said that executives at the company are dealing with big liability problems, and they know it.
“They might say, ‘we’re shutting you down because we want to control the inventory and the consumer experience for our own liability safety,'” he said of Amazon’s attitude toward 1P vendors. This is especially true for certain products, like consumables and groceries.
It’s not all about consumer safety and satisfaction, though.
“They want to scale, and margin and profitability [are] becoming more and more important to them on the retail side,” Ohsman said. “If you look at the overall marketplace, first-party Vendor Central is way less than third-party Seller Central. In terms of units and gross margin value, 3P is much bigger.”
Providing the infrastructure for brands and vendors to do business isn’t enough. Amazon wants to reap the benefits of being top vendor on its own platform.
Though the rules vary greatly across categories, Ohsman said that any vendor below $10 million in wholesale dollars is vulnerable to being axed from the 1P program.
For outdoor sellers, most of whom make well below this amount on the site, exceptions might be made. Amazon doesn’t have enough inventory of these niche products to sustain these consumer needs all on its own.
“If they purge them, they would have nobody,” Ohsman explained.
So what will happen to the vendors kicked out of Vendor Central?
They’ll shift to Amazon’s marketplace of third-party sellers, Ohsman said. Many attendees in the room, whose businesses ranged from apparel to footwear, gear and more, expressed that they’d already begun moving their operations over.
The change will impact more than logistics and fulfillment.
Longstanding vendors essentially will have to build their reputations from scratch, competing with Amazon for market share. Ohsman said that the company will continue to sell the inventory it has until stock runs out, forcing brand owners and authorized third-party vendors to compete with Amazon and its Prime fulfillment option to sell their own products.
He also encouraged vendors to look out for suspiciously “huge orders” from Amazon in the coming months, as they could be looking to stock up on product before kicking vendors off the platform.
So the question becomes: as these changes materialize, what can third-party vendors do to weather the storm?
Ohsman recommends that brands preserve their branded content from their seller pages, at the risk of losing it when they’re kicked off the Vendor Central platform. Then, they’ll need to determine the right distribution model going forward into 3P selling.
“Preserve your retail pricing levels so that you don’t lose sales after losing the Prime option,” he said. “Preserve your advertising efforts. Develop the skills to use Amazon customer data to your advantage.”
And above all, Ohsman said, brands should work to bolster off-Amazon traffic. Even though Amazon will likely win sales with price-oriented shoppers and Prime members, driving traffic to a direct-to-consumer site or retail store is a triumph for brand awareness.
And maybe, even if the consumer chooses to buy their products on Amazon in the end, they’ll buy from a seller’s store instead of from the company directly.