With Amazon's newly implemented rules meaning it will now focus on sourcing products directly from brands instead of distributors and wholesalers across the EU as of this April, we speak to James Lush, Head of Partnerships at expert marketplace partner, Boulevard [1]. James talks us through what these changes will mean to both brands and distributors, and whether this new direction marks a larger trend in Amazon's strategy that sellers need to be aware of.
Can you explain the new approach Amazon is taking to European distributors, and how these changes will affect Amazon vendors?
Amazon seem to be effectively "cutting out the middleman" with this new strategy that looks to cut ties with their European distributors. They are essentially bypassing them in favour of going directly to brand owners with regards to their vendor programme. These changes mean re-sellers are in a position where Vendor Central is no longer an option, and the first party route to selling on Amazon is all but gone unless they are invited to the programme based on the re-sellers own branded products (if they have an own brand). This means the remaining option for these distributors to sell on Amazon is selling as a third party, which of course requires an existing infrastructure to ship to customers directly if fulfilling themselves or utilising FBA if not.
What do you think Amazon's motivations are for these changes?
Amazon has explained its decision as being driven by the requirement to trim costs and keep prices low for the end consumer. Amazon sees these distributors as an extra link in the chain between themselves and the product, so rather than sourcing these products through a distributor to then sell on their platform, they're looking to go direct to the source. Naturally, you'd expect this to start with the best-selling brands and products first.
With Amazon now opting to approach brands directly, what implications does this have for brands?
Amazon are clearly looking to build relationships with brands directly, and increase engagement with the Amazon Vendor Programme. The benefit here is that Amazon can have a closer relationship with the brand and therefore a greater influence on the product selection and costs. As anyone who sells on Amazon can testify to, being a successful seller certainly doesn't happen overnight. The platform demands a level of attention, resources and technical knowledge in order to thrive, and so brands who are simply not used to this may find it difficult to adjust. One particular pain point that I can foresee is ensuring that the resale prices are being optimised and are reflective of the products quality, while also making it attractive for the end consumer, in both the short and long term. If listings are left unmonitored, brands are left open to the potential for rapid devaluation of their product that can come as a result of the dreaded "race to the bottom".
Does this point to a larger trend within Amazon's business model?
I think what we're seeing is actually part of a greater shift towards 3rd party sellers on the part of Amazon. They have already indicated that distributors will still be able to sell products directly on their platform as a 3rd party seller, and we're seeing the total revenue of Amazon sales continue to grow, with 3rd parties growing much faster than Amazon retail, achieving more than $300bn in 2020 alone. This could very well reflect the fact that the input required from Amazon on a Vendor Central sale is far greater than a sale taken and fulfilled by the merchant (a 3rd party seller), but Amazon will still benefit from the referral fee of that sale. It makes sense that Amazon are happy to see the number of 3rd party sellers growing, but it does make it much more difficult for these sellers to set themselves apart from the competition.
What are the benefits of becoming a hand-picked vendor to Amazon, and should brands and distributors exercise caution?
Many brands and distributors will have already recognised the necessity of selling on marketplaces, and many will have been invited to participate in the Vendor Programme, adopting the 1st party approach and effectively becoming a wholesaler to Amazon. While this does come with benefits, including the "seal of approval" that comes from having your products "Sold and Dispatched by Amazon", not to mention a host of various marketing tools, it also comes at a cost. Most notably is the loss of control over pricing and margin. With the brand not selling the product themselves, they become wholly reliant on Amazon's Product Order replenishment to maintain the presence of their product's listings. This is a rather daunting prospect for brands who have fought tooth and nail to get their products near the summit on listings, only to tumble back down into the abyss if the listing goes completely "out of stock" on the platform.
I think this is where marketplace partners like Boulevard really come into their own, enabling brands to have their products represented on marketplaces without the need for dedicated resources for these channels, whether that be through maintaining the account health or fulfilling orders directly.
Do these changes to the Amazon platform in the EU signal a greater reliance on partnership models within marketplace selling, and why might brands and distributors opt for this over simply going it alone?
While it is clear that 3rd party sellers will continue to grow at considerable pace on Amazon and other online marketplaces, it's also incredibly difficult for these sellers to get a foothold in an increasingly saturated pool of competition. Any good marketplace partner worth their salt goes above and beyond the basic requirements like fulfilling orders, by taking the headache out of various pain points common to marketplace selling. Ensuring the listings maintain velocity and protecting the value of the products by staying out of the dreaded "price wars" are two key examples that ensure suppliers maintain transparency and control over their products.
While these changes undoubtedly affect the way sellers approach Amazon, for us at Boulevard, the partnerships we create with our suppliers are at the heart of what we do, and we see this as an opportunity to have more meaningful dialogues with our partners and continue providing solutions and services that really address the pain points of marketplace selling, whilst preserving product value and optimising growth on these platforms.
For further information visit Boulevard [2]