
Amazon Targets Unprofitable Items, with a Sharper Focus on the Bottom Line - JumpCrisscross
https://www.wsj.com/articles/amazon-targets-unprofitable-items-with-a-sharper-focus-on-the-bottom-line-11544965201
======
cepth
Here's a related development:

Amazon has been pushing many of its larger Amazon FBA merchants to use Seller
Fulfilled Prime (SFP). Instead of these merchants shipping from their own
warehouses to an Amazon fulfillment center (FC), merchants ship directly from
their own warehouse to customers. Amazon is dangling huge fee discounts to
incentivize eligible merchants to use SFP.

The benefit for merchants is that they get to ship at the negotiated rates for
UPS/FedEx/USPS that Amazon has access to. Additionally, these SFP merchants
still get the Prime badge.

For Amazon, this will likely mean fewer FCs to build, and being able to save
on labor, packaging, etc.

To me, it was always evident that Amazon loses quite a bit of money on
shipping/handling some larger items. When an FBA merchant sells on Amazon,
there's a referral fee and FBA fee. The FBA fee is often absurdly low, and
might be lower than the cost to just ship from the merchant warehouse to a FC.

It seems to make intuitive sense that instead of shipping from point A
(warehouse) -> point B (FC) -> point C (customer), if you can ship from point
A to point C in a reasonable amount of time, it saves all parties money.

ADDENDUM:

It's also worth considering that SFP will be great for Amazon's efforts to
build out its own delivery fleets. I imagine that in the future, SFP merchants
will be forced/given the option to ship with Amazon's own parcel delivery
service. This will be a steady base of business (extreme "dogfooding") to
start off with, similar to how AWS originated with internal infrastructure for
Amazon.

~~~
rrdharan
That AWS origin story is a myth:

[https://www.networkworld.com/article/2891297/cloud-
computing...](https://www.networkworld.com/article/2891297/cloud-
computing/the-myth-about-how-amazon-s-web-service-started-just-won-t-die.html)

The Amazon store didn't start switching significant pieces over until 2011-12
I believe...

~~~
cepth
Seems like this depends on who you ask?
([https://techcrunch.com/2016/07/02/andy-jassys-brief-
history-...](https://techcrunch.com/2016/07/02/andy-jassys-brief-history-of-
the-genesis-of-aws/))

> "It began way back in the 2000 timeframe when the company wanted to launch
> an e-commerce service called Merchant.com to help third-party merchants like
> Target or Marks & Spencer build online shopping sites on top of Amazon’s
> e-commerce engine...At that point, the company took its first step toward
> building the AWS business by untangling that mess into a set of well-
> documented APIs."

> "The internal teams at Amazon required a set of common infrastructure
> services everyone could access without reinventing the wheel every time, and
> that’s precisely what Amazon set out to build — and that’s when they began
> to realize they might have something bigger."

> As the team worked, Jassy recalled, they realized they had also become quite
> good at running infrastructure services like compute, storage and database
> (due to those previously articulated internal requirements). What’s more,
> they had become highly skilled at running reliable, scalable, cost-effective
> data centers out of need. As a low-margin business like Amazon, they had to
> be as lean and efficient as possible.

> "It was at that point, without even fully articulating it, that they started
> to formulate the idea of what AWS could be, and they began to wonder if they
> had an additional business providing infrastructure services to developers."

From _The Everything Store_ :

>"Groups within Amazon were told to use AWS while the services were still
immature, a demand that led to another round of consternation among its
engineers." (Page 221)

I guess we could say that AWS's first customer was not necessarily Amazon, but
the team and infrastructure predated AWS, and AWS _was_ used by Amazon
internally.

------
sambroner
I'm very excited to see that some of the biggest ideas for improving the
bottom line are also better for the environment. The alignment of these
agendas could be very powerful.

Specifically, reducing double shipping (Coca Cola -> Amazon -> Customer) and
inefficient packaging are both targets as Amazon seeks more profitable
delivery.

~~~
sct202
It could also increase environmental impact if it creates additional
deliveries to the same location that could have previously been combined. Like
if now instead of just 1 delivery from Amazon, the customer is now getting
their order delivered by Amazon, Coca Cola, Fedex etc. So now the delivery
routes are duplicating coverage.

~~~
xur17
It's very rare that Amazon ships multiples items in the same box to me, so I'm
doubtful the impact will be very high.

------
cloakandswagger
Nothing notable here except Amazon's punny acronym for unprofitable products.

The nice thing is the elimination of waste. The lack of margin on those items
implicitly means there is significant waste involved with selling them: large,
wasteful packaging as well as more fuel needed to transport them to warehouses
and then to customers.

It serves as a forcing function to encourage manufacturers to adapt their
products to this new form of distribution, similar to Walmart or other
retailers being selective about what they grant shelf space to.

~~~
JumpCrisscross
> _Nothing notable here_

I didn't know Amazon was now focussing "on its bottom line in addition to its
rapid growth" [1]. It has historically been a top-line company.

Amazon asking Coca-Cola to "start shipping [Dash button] orders directly to
consumers" also surprised me. It shows a shift from relying on logistical and
distribution supremacy to market power through customer access. (One also
wonders if recent political elements factored into the decision.)

[1] [https://www.wsj.com/articles/amazon-targets-unprofitable-
ite...](https://www.wsj.com/articles/amazon-targets-unprofitable-items-with-a-
sharper-focus-on-the-bottom-line-11544965201)

~~~
beagle3
... and also means that they reduce competitor barriers by essentially taking
themselves out of the loop; jet can offer “jash” buttons tomorrow with a
similar arrangement.

~~~
jjeaff
Or, if you are coca cola, you will know who all of you major repeat dash
customers are. Just ship them a "coke now" button and cut out Amazon
completely. Surprisingly, product is no longer unprofitable once you cut out
the 15%+ Amazon cut.

~~~
reaperducer
Another benefit for the customer is that you know you're going to get the real
thing, not co-mingled fake crap from God knows where.

~~~
Scoundreller
I think consumers would be quite happy if they got Gray-market Mexican or
Canadian coca-cola made with real sugar...

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ninth_ant
Amazon might be wise to consider the effects of outsourcing, the ones now
being realized by western tech and manufacturing companies.

Eventually they realize they can cut you out of the picture and do it
themselves. If Amazon trains big conglomerates such as Unilever and Coke to
ship direct to consumers, that makes it easier for those conglomerates to just
start doing that themselves and/or with other retailers.

~~~
mattzito
I would argue the difference is that the products that unilever and coke make
are already relatively low margin, low price variability products, such that
there’s not a lot of opportunity for them to undercut amazon. Similarly if I
have to go to coke.com to buy coke for a 2% savings vs just buying it from
wherever I’m buying other stuff from, it’s not worth it to me.

Electronics manufacturers are dealing with much higher ticket items, where
consumer price expectations are highly variable, and are comparatively
infrequent purchases. It’s a totally different ball game.

~~~
dmurray
I'd expect Coke to be a high margin product. Supermarket own brand colas sell
for a tenth of the price.

~~~
mattzito
The production margins, I totally agree. But coke spends a fortune on
advertising that would still need to be spent if they were selling directly.

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lunchbreak
I've noticed that Walmart is doing the same thing - some items can only be
ordered in bulk or in store.

This may lead to a resurgence in visiting stores for people that don't want to
order in bulk

~~~
ghaff
Even if you buy in bulk (assuming you have a car). My usual approach is to
stock up on kitchen towels, detergents, etc. every few months when I’m
starting to run low. I’ve priced out Amazon a couple of times and pricing
seemed rather variable depending on the SKU. Easier just to do a run to
Walmart/Target/etc.

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neurotech1
Non-Paywall version: [https://outline.com/gYnEz2](https://outline.com/gYnEz2)

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AJ007
What a coincidence, CRaP is the acronym I use for any category of product from
Amazon that I can't be certain if it is authentic or acceptable build quality.

The future is trustworthy merchants selling and shipping directly to their
customers. The more holes Amazon pokes in their own product, the more openings
there are to enable this.

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choonway
got extra space in the shipping box? fill it with CRaP... haha...

