Amazon to set small suppliers adrift
For more than a decade, Amazon.com has publicly pronounced that it is not a destroyer of small businesses but a creator of growth opportunities for those that take advantage of the reach offered by its platform. Fifty-three percent of Amazon’s online sales are made by third parties, after all, and nearly three quarters of those selling directly to consumers on the site have between one and five employees. Many other small businesses sell products on a wholesale basis to Amazon. And so goes the rationalization that Amazon is small business friendly.
New reporting by Bloomberg, however, suggests Amazon may soon seem a less hospitable place for small third-party sellers as the e-tailer cozies up to larger retailers (Best Buy, Chico’s, Party City, etc.) and consumer brands such as Nike choose the path of coopetition to drive greater direct sales to consumers. Amazon is also shifting its percentage of products sourced from small suppliers to larger entities such as LEGO, Procter & Gamble and Sony as it focuses on competing directly with rivals selling popular name brand goods.
Small businesses that had sold products in bulk to Amazon will have to make a shift in coming months as they work under new vendor relationships that require them to sell items to shoppers one customer at a time. While there is still a possibility that Amazon will pull the plug on the plan, it appears to be full speed ahead at this point in time, according to three unnamed sources familiar with the matter who were cited in Bloomberg’s reporting.
Amazon’s approach seems to mirror other retailers that have sought to optimize SKU productivity by limiting the number of choices available in select categories where the 80/20 rule (eighty percent of sales are generated by 20 percent of products) may apply.
While not an exact parallel because Amazon is the final distributor in this case, the e-tailer’s decision to expand direct relationships with large national suppliers is reminiscent of the approach that many consumer packaged goods manufacturers took with Walmart in the nineties. The rationale many executives expressed at the time, typically off-the-record, was that selling directly to Walmart rather than going through grocery wholesalers or directly to small supermarket chains enabled them to meet or exceed current volume levels at a much lower cost because of a reduction in distribution points. Walmart benefited as well, by becoming the distributor of choice and realizing savings on the cost of goods that came with steadily increasing shipments.
EDITOR’S UPDATE – May 30, 2019: Amazon.com issued the following statement in response to Bloomberg’s report that the e-tail giant was planning to cut loose many of its small wholesale suppliers: “We informed Bloomberg prior to publication of their article that their story and sources are wrong. We review our selling partner relationships on an individual basis as part of our normal course of business, and any speculation of a large scale reduction of vendors is incorrect. Like any business, we make changes when we see an opportunity to provide customers with improved selection, value, and convenience, and we do this thoughtfully and considerately on a case-by-case basis.”
- Percentage of paid units sold by third-party sellers on Amazon platform as of 1st quarter 2019 – Statista
- Amazon Is Poised to Unleash a Long-Feared Purge of Small Suppliers – Bloomberg
- Retailers and brands become best of frenemies with Amazon – RetailWire
- Selling with the enemy: Why rival retailers embrace Amazon.com – Reuters
- What will a Nike/Amazon deal mean for the brand and other retailers? – RetailWire
- Best Buy and Amazon expand their coopetition – RetailWire
DISCUSSION QUESTIONS: Will Amazon’s apparent decision to reduce the wholesale business it is doing with small vendors have an impact on its performance? What will the reality of the plan, if enacted, mean for the vendors who no longer sell to Amazon in bulk?