I stopped reading and started researching there. Amazon has positive cash flow, both overall and from operations specifically, which is what would would matter to this argument.
In the linked-to post, the author states
> In fact, if a careful observer overlooks the GAAP loopholes that allow Amazon to dress up its numbers, during 2017 the firm experienced a negative cash flow of $1.461 billion
This is very wrong. That calculation stems from the section of their 10-K titled _Free Cash Flow Less Finance Lease Principal Repayments and Assets Acquired Under Capital Leases_. As the section says "Free cash flow less finance lease principal repayments and assets acquired under capital leases is free cash flow reduced by “Principal repayments of finance lease obligations,” which is included in cash flow from financing activities, and property and equipment acquired under capital leases. In this measure, property and equipment acquired under capital leases is reflected as if these assets had been purchased with cash, which is not the case as these assets have been leased.", which is to say, it's including both a remix of items that already exist on the cash flow statement, and things that weren't paid in cash but are being treated as if they were.
If Amazon were truly selling below average cost, their operating cash flow would be negative. It's not; it's positive. As is their cash flow from across operating, investing, and financing activities.
Vendor people are being kicked off into FBA and FBM. The article missed this whole important distinction.
Source: my company brought new products to market recently, initially selling exclusively on Amazon.
The other reason none of this makes sense is that Amazon is moving aggressively into same and next day delivery. For that to work, they need scale. Having more products in their fulfillment network helps them achieve scale. It's not really possible for them to offer same day delivery on items that are fulfilled by merchants.
FBA does shift a lot of costs onto Amazon but it also lets them completely manage the customer experience. You don't have to deal with some dumb shit seller who could give a crap about customer service. It conflicts with Amazon's plans of broadening their fulfillment network and logistics too. Why build all that capacity if your sellers are now responsible? And while Amazon does charge a single per unit fee, they also have monthly storage charges, long term storage charges, fees for handling refunds, etc, and combined, the fees have steadily increased each year to the tune of 5-10%. Oh, and you also get charged fees for Amazon to do any prep work on your products, etc.
FBA has been an unequivocal boon for Amazon, and I doubt will go away any time soon.
The shift to seller fulfillment is probably driven by sellers, not Amazon. FBA requires you to carefully manage inventory--you're penalized if you don't. It is infeasible for drop-shippers. You have to understand their reports, and reconcile them. You're giving up a large amount of control and introducing some risks, but for some incredible benefits.
Returns are up, and some thing if they are cheap I don't even bother returning. I've gotten used items marked as new, totally counterfeit apple products more times than I could count (stopped using Amazon for that) etc.
Regardless, if there is an issue with a commingled product, Amazon's customer service will take care of it instantly, which is putting the customer first. I imagine there are a hundred variations, besides commingling, where sellers do shady shit, and regardless, Amazon will take care of you as a customer quickly, without question, and usually with additional compensation above what is expected.
So they compensate using customer service.
And they are actively trying to solve this and reduce the number of SKU's.
"Amazon's choice" tag is one example of that.
I've also noticed that sponsored products (which I don't want ever) are better targeted towards my queries by EBay. The difference seems to be that Amazon deletes keywords until it has something both sponsored and irrelevant to show and hopes for the best. That must have survived A/B testing, yuck.
What I think it comes down to is I'm an oddball that wants organic search results. I understand why Google messes with that to deliver ads, but for the life of me, I'm trying to help Amazon take my money and they're getting in my way and my larger purchases (>$100) are migrating away now because it's becoming impossible to find what I want, occasionally worked around by searching the Amazon catalog, ironically, from Google.
I buy a lot of random computer hardware from Europe, most recently a Louqe Ghost small form factor case. All us orders for it are first sent freight to Amazon, then amazon dispatches out the cases. As of current, they do not sell on Amazon.
The smaller players will get squeezed for a little while but I don't think it will take long for them to leave the platform. If they can't get subsidized fulfillment, they will simply move to a D2C model where they don't have to pay Amazon 15% plus $1200/year and can control pricing.
The most obvious way they will lose out, to me at least, is in advertising. They still have to pay for CPC on Amazon, but it is much more effective at generating sales than AdWords or Facebook on a brand-owned site.
amazon ad network is useless if you are not selling trhu amanzon itself. unless you can compete on price, then since your ad will be show to someone who just bought a product in most of the case, maybe you can hope they will cancel the amazon order and buy on your d2c site.
Source: mid-sized Amazon 1P/3P vendor, mid-millions rev.
The little guys have none of that and will bring in tons of traffic to the site, making it a more attractive option for manufacturers who will bend their rules to get a piece of the pie.
A lot of speculation around this move by Amazon (removing FBA type businesses) has rattled around, and rattled some suppliers. But my sense of it is that Amazon has realized that a noticeable portion of their FBA business involves counterfeits and frauds. What is worse, the 'A' part of FBA makes Amazon a liable party to the fraud. I'm going to further guess that Amazon has been looking at ways to try to police people who submit counterfeit goods as 'legit' and get Amazon to sell them, and finding that this is a game of whack-a-mole that costs more than the margins they are getting on this business. The "easy" solution is to dump FBA (or at least strictly curtail it with new language/contract work that allows Amazon to recover costs from the bad actors).
It gives me hope that they recognize how crappy their offerings have become, especially in normally 'high margin' products like Apple accessories.
Amazon's edge is that they've managed the logistics of this at a scale that no one else could -- before Amazon shipping was expensive, and often terribly slow.
So if these big vendors are just shipping direct, and Amazon is nothing more than an order submission agent, I would argue that is exactly contrary to what Amazon wants. Those vendors could do the same thing for any front end (Walmart, Target, whatever) equally.
>If an item sold on Amazon is FBA, that means that the wholesaler’s inventory is completely fulfilled by Amazon. The wholesaler sends a large portion of their inventory in bulk to Amazon’s fulfillment centers, where it is stored until a customer decides to buy it. Amazon then packs and ships the items to customers. It also incurs all the costs associated with these activities, many of which are variable costs. In exchange, wholesalers pay a per-unit fixed fee. The introduction of same and next-day delivery into the FBA scheme seems to further increase the cost of this service. Amazon’s shipping costs, which include sortation and delivery centers and transportation costs, amounted to $27.7 billion as of 2018.
This is generally wrong, and mixes up what vendors enrolled in Vendor Central do. Amazon sends vendors POs and then sells the products. The end. Some vendors also have some additional fees but it is not the same as a "Seller" who is not a wholesaler at all, but a business that owns the products being sold FBA and FBM the entire time. Amazon collects fees on each of those sales and never owns the inventory in question.
>On the other hand, when an item is FBM, fulfillment is done by the wholesalers.
No, they are not wholesalers. This may seem like a dorky nitpick but it isn't. A wholesaler sells the products to Amazon. The 'purge' complaint was from wholesalers, called Vendors or Vendor Central users in Amazon parlance.
>Thus, it appears that Amazon’s market share is closely tied to its ability to accomplish its “fulfillment network optimization” goals by bullying wholesalers to move from FBA to FBM.
No, they are just not issuing purchase orders. No purchase order, no wholesale relationship. They explicitly communicated to Vendors who are not receiving anymore POs to tell them to consider selling their products on Amazon as Sellers, which again means not being a wholesaler anymore but becoming a retailer. They can sell FBM or FBA but Amazon collects fees either way. That is entirely up to the seller.
The pressure is just Amazon saying "we won't buy your stuff anymore, but you can still sell on Amazon running your presence yourself or selling it to another Amazon seller."
I could just keep going but it is really obvious that this author only knows about how the Amazon marketplace works from financial reports and has zero experience in how the Amazon marketplace actually works.
I'm not sure I understand. Does this not describe the bullying the OP mentions? Amazon went from issuing POs to no longer doing it, effectively forcing wholesalers to move to FBM. I have no horse in this race, I'm just trying to understand the argument. Thanks for shedding some light!
Basically their strategy is now 80-20, do the big ticket items direct and let the wholesalers fight for scraps. This makes a lot more sense to be honest than them trying to run every single little thing that competes against one-another.
It is not "bullying" for a company to just stop buying your brand's products. Vendors almost universally receive less per unit when they sell to Amazon as wholesalers than when they sell as retailers. The article makes it seem like all FBA users are wholesalers when the reality is nearly opposite: most FBA users are retailers, called "Sellers" in Amazon parlance. Some fraction are wholesalers who sell directly to Amazon, but it is not nearly even 20-30% of the marketplace volume.
The whole thing about FBA vs. FBM as it relates to vendors is another misleading red herring int the article which confuses more than it illuminates. There was nothing in the recent mass halt of POs to many vendors about encouraging vendors to go FBM. FBM just means you yourself ship the orders to customers versus you ship the products to Amazon warehouses for Amazon to ship orders to customers as they come in.
Sellers can do either FBM or FBA as it suits them and their business model. In Amazon's communication to vendors impacted by the cancellation it just said "go give being a seller a try." There was zero in that about "you should try merchant fulfillment" and it's not even relevant.
The worst part about this article is that there were non-specialist articles that correctly interpreted the event and correctly described what was going on, like this one from the Arkansas Democrat-Gazette: https://www.arkansasonline.com/news/2019/mar/08/amazon-abrup...
>Pushing suppliers onto the marketplace -- rather than selling products itself -- lets Amazon offload the risk and cost of purchasing, storing and shipping the merchandise. Instead, the company can charge suppliers for these services and take a commission on each transaction, which is much more profitable. The strategy is part of a larger effort to reduce overhead by getting more suppliers to use an automated self-service system that requires no input from Amazon managers.
^-- That quote right there is 100% accurate. It is a full and correct description of Who/What/Where/When/Why of the event along with some useful context. The article in the OP gets most of those Ws incorrect.
You can certainly point out that this kind of erratic behavior on Amazon's part is not that pleasant for vendors, but you would have a hard time finding a vendor of any scale to Amazon who would not say that they are erratic, unfair, and unprofessional as it relates to business dealings with vendors which is probably one of the reasons why they are paring back the program. There are some vendors who love their rep at Amazon and have had great experiences, but that wouldn't be the majority. This sudden pivot was a rude surprise for many vendors, but dealing with Amazon directly as a wholesaler is generally a series of rude surprises anyway.
There was no change to sellers and certainly Amazon wants more people to sell FBA rather than FBM because you obviously have to pay more to Amazon for each unit you sell if you use their warehouses plus storage fees besides than if you use your own warehouses and handle the shipping yourself. Amazon still wants these brands to sell their products on Amazon, but they don't want to be responsible for buying the goods from them if that makes sense.
Even if the analysis is correct, the consumer benefits by this arrangement. Why should we worry?