Amazon established itself as the world’s largest online retailer; but recently, it has been pivoting toward its identity as a marketplace instead. According to reports starting in the summer of 2019, Amazon plans to discontinue its traditional retail (wholesale/resale) relationship with countless smaller Vendors and move these lower revenue companies from its first-party platform, Vendor Central, to its third-party marketplace, Seller Central. We’ll discuss what happened, which Amazon businesses are being affected, and how Brands can maneuver the ongoing changes as seamlessly as possible.
What Caused The Amazon Vendor Central to Seller Central Push?
In 2018, reports came out about Amazon’s plan to have a large-scale reduction of Vendors on Vendor Central, its first-party platform, where it buys goods wholesale and resells them. The affected Vendors would be shifted to Seller Central, the third-party marketplace. Rumors of these changes have been persistent in the Amazon Seller community for months but reached the tipping point in March 2018 when Amazon suddenly canceled thousands of weekly purchase orders primarily from Vendors who fell under the $10-million mark.
Although speculation circulated widely, Amazon, for the most part, remained quiet, doing very little to assuage concerns – only to later rebuff the reports of a large-scale expulsion of Vendors.
Amazon’s official denial and the word from experts who work with Sellers both suggest they may roll out the speculated purge in phases to soften the blow. Specifically, rather than implementing drastic, large-scale changes, Amazon may gradually streamline its retail operations through new rules for Vendors. Already, Amazon’s Vendor Central has become more restrictive, regularly introducing new requirements. Previously, it directed Vendor Central Brands to register on Amazon Brand Registry or convert to the third-party marketplace, Seller Central. The brand registry requires a trademark, which is a long and arduous process to acquire, especially for smaller Brands.
Why Will the Amazon 1P to 3P Trend Continue?
Because it makes business sense. Amazon has constantly revolutionized to optimize its services and expand operations, and it will not likely slow down in this aspect. Amazon appears to be emulating the eBay model, primarily focusing on the more profitable business of providing a marketplace like Seller Central for Sellers to list their products (like an online landlord) and, if needed, a means to purchase storage and shipping services (through Fulfilled by Amazon, also known as FBA). Furthermore, this move would mean that Amazon reduces the cost of managing less profitable inventory to focus more on its growing private label suite and in-demand Brands.
Preparation is Key
The writing is on the wall, and, according to experts, low-revenue Vendors feel the pressure of imminent change. Because quitting Amazon is out of the question for most ecommerce Brands, Amazon Vendors and Sellers need to adapt to Amazon’s fluid landscape. Specifically, at-risk (under $10 million in sales) and recently-booted Vendors will need to update their business strategy to maintain revenue and growth projections if they transition to Seller Central.
Since Seller Central requires more hands-on work from the Brands, success will require optimized listings, Enhanced Brand Content on top listings, and strong data to understand the logistics needed to manage a Seller account. Luckily, Amazon should already recognize ASINs from Vendor Central, making the transition a little bit easier.
The Transition: Amazon Vendor Central vs. Seller Central
In Vendor Central, Vendors had one customer to sell to: Amazon. Once the items were sold wholesale to Amazon, Amazon handled the inventory and retail sales. Now, in the third-party marketplace, Seller Central, Amazon Sellers sell direct-to-consumer. Not only do new Sellers need to manage a different platform, but they should also implement a strategy to remain visible in the marketplace with a plan for advertising, customer communication and buyer reviews set in place.
If you are one of the vendors pushed to use Amazon Seller Central, don’t be too alarmed. There are several setbacks to being a Vendor vs. Seller, such as:
- No Control Over Profit Margins: Vendors do not have control over the pricing of their products – Amazon does. This is risky because, with the absence of minimum pricing policies, the price tag Amazon places on your products can put you at a deficit.
- New Product Pushback: Amazon likes products that make money. Due to the uncertainty of how a new product will perform, profit-wise, Amazon can choose not to place purchase orders for those newer items, which can be frustrating for Vendors that are trying to grow their product line.
- Lack of Buyer Insights: Since Vendors give Amazon majority control over their inventory, they have limited knowledge and data on their buyers. This lack of insight can prevent Vendors from making necessary product decisions or growing their business.
Seller Central may seem more complicated with added responsibilities for the Sellers; however, there are also benefits:
- Control Pricing: Seller Central allows Amazon Sellers to control pricing and connect directly with their customers, resulting in more knowledge of their consumer base and product sales data. This can lead to an increase in sales and brand visibility.
- Listing Decisions: Brands on Seller Central can decide for themselves which of their products to list, rather than responding to purchase orders from Amazon, allowing for a more strategic approach to their marketplace offerings.
- Address ASIN Profitability Issues: Through the control you have over the products you are selling on Seller Central, you can address any ASIN-level profit issues more efficiently than in Vendor Central.
Inventory management, along with customer management, will be another area of responsibility that Vendors new to the third-party marketplace, Seller Central, will need to master. However, for new Seller Central Brands that don’t want the burden of managing all their own inventory, there is still the option of Fulfillment by Amazon (FBA), in which Amazon handles order fulfillment for a fee. FBA allows Sellers to ship their inventory to Amazon warehouses, and Amazon takes care of the shipping. But, whether Sellers choose Fulfillment by Merchant (FBM) or FBA, they will still need to plan inventory to ensure appropriate amounts of each product are stocked to remain profitable.
There’s also the option of Seller-fulfilled Prime. This program allows Sellers to domestically deliver their products to customers from their own warehouse. There are some requirements to participate, such as: offering premium shipping options, shipping 99% of orders on time, having less than a 0.5% order cancellation rate, and more. There is a waitlist to join the program, but you can sign up through your Seller Central account.
How Seller Central Can Lead to Success
Amazon is taking steps to reduce its wholesale operations and reorient its focus to the marketplace. If the reporting proves true, then the Amazon pivot will alter business practices for numerous Amazon wholesale Brands. Although the transition from Vendor Central to Seller Central may be a jolt, there is an upside. Amazon Sellers will have more control of consumer data to grow their businesses and also have the opportunity to use Fulfillment by Amazon to reduce the workload of managing inventory. Furthermore, since many companies are aware of the presumed changes, they can start planning now and, with strategy, successfully survive the Amazon Vendor Central purge.
Adlucent offers a full range of Amazon services that will help you optimize your marketplace strategy and boost sales. We invite you to check out what we can do for you to make the most of your digital marketing strategy.