Amazon is forcing wholesalers to become marketplace sellers (AMZN)
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Amazon is planning to stop making wholesale purchases from many suppliers in the next few months, pivoting from reselling those goods to having wholesalers sell to consumers through the marketplace themselves, sources told Bloomberg.
This follows reports of such an initiative in March. Now, Amazon will generally only make wholesale purchases from merchants with over $10 million in annual sales on Amazon. It's worth noting that an Amazon spokesperson did largely refute these reports in an emailed statement to Bloomberg, saying that "We review our selling partner relationships on an individual basis as part of our normal course of business, and any speculation of a large scale reduction of vendors is incorrect."
Here's what it means: Amazon is looking to add greater flexibility to its retail operations, and it won't have to sacrifice much revenue to do so.
By moving away from wholesale purchases and reselling, Amazon can hold less inventory and still profit from merchants' sales by taking commission and charging for services. By making fewer wholesale purchases, Amazon likely won't be on the hook as often for unsold inventory from vendors, and it won't have to hawk third-party goods as much.
This can save the e-tailer time and money in operations and allow it to focus on its marketplace capabilities and business. And by taking commission on third-party sales and charging merchants for services like Fulfillment by Amazon (FBA) — which former wholesalers will likely need to use to succeed as third-party sellers on Amazon — the e-commerce giant will still have ample opportunity to drive revenue.
The bigger picture: This shift in Amazon's business model will complicate future efforts for both the e-tailer and merchants.
- Amazon's move to make Prime's free two-day shipping just one-day may not be as simple if it controls less of its sellers' inventory. Amazon needs a wide variety of inventory on-hand at all times in its warehouses to speed up delivery. To obtain this inventory, it needs third-party sellers to participate in FBA — which is likely why it's offering steep discounts on warehouse fees — and it'll need to convince its former wholesale partners to take part in the program quickly to smooth the transition to one-day.
- Vendors will need to learn how to stand out and succeed on Amazon's crowded marketplace — and they'll need to figure it out fast as the holidays approach. Many of these merchants may have no experience selling on Amazon, meaning they'll need to quickly learn to use its various seller tools and figure out how to reach and attract Amazon shoppers. Their sales may take a hit in the short run as they adjust, which could be especially problematic given that all-important Q4 follows not long after the rollout of this initiative.
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