This article fundamentally misunderstands what Amazon recently did (describing it as a "supplier purge"), misunderstands what the fulfillment business is, and incorrectly defines Amazon as a monopoly because it is a trendy thing to say more than it is an accurate thing to say.
>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.
Exactly. And it makes perfect sense honestly. Brands get to control their pricing, Amazon gets probably better margins than they otherwise would (up to 15%), and Amazon no longer has the risks associated with owning the inventory.
> 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.
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!
Amazon used to do a bunch of POs from super high to super low volume - which meant a lot of sloppy purchasing (typically buying too much and having excess).
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's misleading because you do not need to be a wholesaler to use FBA, and in fact the majority of FBA users have never been wholesalers and never will be. This is one of the reasons why this article is so misleading, because it gives off a fundamentally incorrect reading of what happened and what is happening at the company.
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.
OK understood, thanks a lot. In short, is it fair to say that the OP overlooked the difference between Wholesalers and Sellers, made it look like Amazon was mainly doing business with Wholesalers, whereas the nuance is actually important and most of Amazon's business is done with Sellers who are just as welcome as they used to be to use FBA. Correct?
Yes, that is really the issue and because it is a common misunderstanding about the marketplace articles like this can be misleading.
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.
>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.