Recently Amazon announced that they would be closing the Vendor Express program and would no longer be placing new purchase orders with Vendor Express users. Vendor Express was a platform that allowed manufacturers, wholesalers and sellers to sell directly to Amazon, and possible allow them to get into the Vendor Central program – an invitation only platform. Over the past few months Amazon has signaled that they do not have as much interest in the Vendor Central platform. We believe that Amazon is transitioning from a Vendor Central to Seller Central focus.
Why is Amazon not Interested in Vendor Central?
The main reason for transitioning from a Vendor Central to Seller Central focus is the cost of the program. In the Amazon vendor program, Amazon purchases products wholesale directly from manufacturers or wholesalers. Amazon then sold these products directly to customers. The products can be easily identified on Amazon as they say “Ships from and sold by Amazon.com”. Amazon would typically look to undercut the pricing of all third-party sellers on the products they were listing. They would almost always win the buy box which would lead to them requesting better pricing from the vendors selling to them.
Amazon initially opened this program to increase the number of products that were available within the Amazon Prime membership. By buying the products directly, they could ensure that the warehouses have stock and inventory is ready for prospective customers. The cost of maintaining the vendor program is high. Amazon needs to pay the workers that manage the categories on Amazon, the customer support teams, the purchasing teams and the actually cost to hold all that inventory. Vendor managers also have an extremely high turnover rate which leads to a reduced experience for vendors on the platform. The majority of vendor managers are part of Amazon MBA rotational program. Many vendors would get accustomed to working with a vendor manager only for them to leave in a few months.
Our Views on the Situation
We don’t think Amazon will get rid of vendor arrangements entirely though. We believe that they will continue the vendor relationships for only the largest and highest volume brands. Maintaining agreements with companies such as Johnson & Johnson or Unilever that produce so many day-to-day items used by customers is vital to the Prime program. These companies are mostly built for selling in a wholesale model versus a direct-to-customer model. Removing them from Vendor Central could lead to issues with products becoming unavailable.
Why We Believe Amazon is Transitioning from a Vendor Central to Seller Central Focus
There are a few reasons that we believe Amazon is making this shift. One of the main reasons is the increasing number of FBA fulfillment centers opening. Amazon now has centers in greater than 50% of the states. The increasing Amazon footprint allows them to store and deliver more products within the Amazon Prime program. In 2016, more than 2 billion products we’re shipped using the FBA program. That number is likely to have increased even more in 2017. More and more Amazon sellers are using the FBA program to get their products to customers. The program allows them to make quick delivers to customers, outsource the customer service, and provides increased visibility on Amazon.
FBA allows Amazon to increase their margins significantly while also reducing their costs. Amazon collects at least 15% of the sale price of each product sold with a referral fee. Amazon also collects FBA fees for products shipping out within the program. This typically can come out to be about another 15% of the sale price for most products. So Amazon is collecting almost 30% of the products sold without having to pay for any of that inventory. It also allows them to reduce the cost of their workforce by shifting from typically higher paying jobs in account management and purchasing to lower paying warehouse jobs.
Signs for the Shift
The closure of the Vendor Express program is also a clear sign of the shift. In the announcement to close the program Amazon stated that “After careful evaluation, we’ve decided to retire Vendor Express and refocus the business on other selling programs.” As we said at the beginning of this post, Vendor Express was a great way for companies to get an invitation to the Vendor program. By taking that route out, the vendor program is exclusively by invitation which allows Amazon to pick and choose who they want.
One last clear signal about this transition is the 2018 Vendor Agreements that Amazon sent out to vendors. The terms that Amazon requested on a large number of vendors was almost double the terms for 2017. The increased cost for vendors to be on Vendor Central makes the platform unsustainable for many businesses. We’ve reviewed several Vendor Agreements from our clients and the costs are impossible to work with for the long term.
What do Vendors Do Now?
Vendors need to be looking toward the Seller Central platform now to remain on Amazon. An area of focus over the past year is establishing presence for all our Vendor Central clients on the Seller Central platform. While many vendors may lack the capability to fulfill inventory themselves, FBA allows them to almost seamlessly create the same relationship they had with Amazon. Instead of selling products directly to Amazon they now are selling direct to customer and allowing Amazon to handle all of the inventory fulfillment.
Another option that we have heard discussed is the wholesaling of products to experienced sellers on the Amazon platform. We’ve heard of sellers reaching out to vendors since these new agreements have come out asking to establish wholesale relationships. This also allows the vendor to maintain a wholesale relationship. In the process they get their money up-front for the inventory compared to after a sale as it does on the direct-to-customer side.
We believe that the signs are clear that Amazon is transitioning from a Vendor Central to Seller Central focus. It is important for existing vendors to create a presence on the Seller Central platform for sustained success on Amazon. Getting proactive with creating the Seller Central account gives the vendor another sales channel in case Vendor Central becomes unsustainable for them. Even if you continue on the Vendor Central platform we still believe it is important to establish the Seller Central presence as a backup plan.
Contact AMZ Advisers to help you with your transition from Vendor Central to Seller Central
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