The Future of Vendors on Amazon
Disclaimer: This article is an opinion piece in which we share our predictions for the future. It is based on our longstanding industry experience, publicly available information regarding Amazon and conversations with our clients. However, it is not based on insider information from people within Amazon.
This month’s unexpected purchase order interruptions have sent shock waves through the Amazon vendor community. Vendors especially are trying to strategize for the future and are looking for answers. In this opinion piece, Sellics CEO, Franz Jordan, shares his thoughts, addresses vendor concerns and offers best practice going forward in a changing Amazon landscape.
Part I: Recent Developments – What Has Happened So Far?
Monday March 4 felt like an e-commerce apocalypse. According to many of our vendors, they did not receive their routine, weekly Amazon purchase orders as expected. Instead, many of these vendors received an e-mail from Amazon informing them that it would not be placing further POs. This sudden PO halt resulted in panic and confusion among Amazon vendors and left many questions unanswered. The decision came seemingly out of nowhere and the context or reasoning behind the PO freeze is still unclear.
It also spelled disaster for many vendors that depend on Amazon orders for a large portion of their profit.
Understandably, many vendors reached out to their Vendor Managers / Support for an explanation. Many of those initial requests went unanswered although Amazon did start to provide some more information a few days later. However, the reasons Amazon gave were not the same for all vendors.
Affected vendors received three different kinds of general responses:
1. The “Technical Glitch” response.
Amazon claimed that some unfulfilled purchase orders were due to a technical error. This response prompted doubt from many affected vendors. One Sellics vendor (wishing to remain anonymous) reported that Amazon said it was testing a new system that launched too early and therefore had some bugs. After the alleged glitch, these POs carried on as usual.
2. The “Switch to Seller” response.
Amazon responded to some of our vendors by stating that their businesses would perform better as third party sellers on the Amazon marketplace. This effectively forced some vendors to switch to the seller model. A vendor we spoke with was asked to accomplish this major change in 60 days or less. Some of these vendors, did receive a follow-up response from Amazon allowing for a transition period during which purchase orders would continue in part or full.
3. The “Register as a Brand” response.
This response strongly encouraged brand owners to register for Amazon’s brand registry system within the next 60 days. Amazon clarified that it would continue ordering from these vendors but made it explicit that Brand Registry was the only way to guarantee automatic POs for branded products. Amazon further stated that if the vendor was not a brand owner, it should consider selling on Seller Central instead.
Who was affected?
It is difficult to know exactly which types of vendors were affected and which vendors might be affected in the future, however, we speculate that size and profitability may be patterns of causality.
Note: due to the small number of 55 participants, these survey results may not be statistically significance for the entirety of the Vendor population
We surveyed 55 vendors and were able to extract the following data regarding the effects of the purchase orders pause. Our hypotheses with regard to this data are as follows:
- Vendors that have been affected the most make 10 million or less in sales volume per year. Generally, these vendors have no assigned Vendor Manager and may or may not have brand registry.
- Furthermore, only US accounts were affected. That is, vendors with accounts in multiple markets saw that only their US purchase orders were halted or permanently frozen. This is not surprising as Amazon generally tests its strategies on the US market and then unrolls these changes into its other markets. Based on this public knowledge, it is plausible that vendors in Europe and beyond will soon be affected as well.
- Finally, all different types of vendors seem to be affected – this means brands as well as distributors selling multiple brands through a vendor account.
This seemingly unclear pattern adds to the discomfort of many vendors as it increases uncertainty as to whether those that have not been affected yet (e.g. international vendors) will be affected in the future. While we are pretty sure that Amazon has defined a clear set of metrics internally, those metrics are not visible from the outside. Instead, the selection of vendors that were affected looks somewhat random.
Current Status as of End of March
Three weeks after the PO freeze, things have started to move, even though the results are very different between vendors. For some, it’s back to normal, some see lower PO volumes than before and some still receive none.
Part II: How We See It – Why is This Happening and Where are We Going from Here?
Now that the dust has settled at least a little bit, many vendors are asking why Amazon did this and – more importantly – what other changes might be coming for vendors in the future.
In order to answer this question, we have reached out to our clients and other industry experts. We were surprised to hear many different answers, rumors and bits of information that were pointing into many different directions and sometimes even completely contradicting each other. We also reached out directly to Amazon but did not get any new information on top of the public statements that Amazon had already released.
At this point, we think that only a small number of people within Amazon really know what’s going on while many of the blog posts and news articles around this topic are highly speculative and based on incomplete information and assumptions. As we could not get to a definitive answer as to where the Amazon vendor program is heading, we want to discuss different theories based on the original data we collected and the publicly available information.
Theory 1: Amazon wants to improve profitability in the Vendor program
The vendor program has always been a lot more reliant on human interaction and was less automated than the seller program. Specifically, the need for dedicated (and well compensated) Vendor Managers that manage the relationship with the vendors was a key difference to the seller program which requires no dedicated point of contact. Due to the lower degree of automation, it can be assumed that the vendor program was less profitable and also less scalable than the Seller program.
Looking back, one could argue that Amazon has already started multiple attempts to increase profitability in the vendor program. The release of Vendor Central Express in 2015 (essentially a self-service form of the vendor program that was discontinued in May 2018) could be seen as one major attempt. Another attempt could be the email that Amazon sent to smaller vendors in late 2018 telling them that they would no longer have access to a dedicated Vendor Manager but instead will be managed through an automated ticketing system (very similar to the Seller support system). The current events could thus be seen as another attempt to increase profitability in the vendor program.
What supports this theory is that only small vendors with less than $10 million in revenue were affected by the PO pause (as found by our survey). It makes sense to push out the smaller vendors first as each vendor is likely requiring a comparable amount of attention from Vendor Managers. However, Amazon can probably generate a lot less revenue from a vendor generating $500k in revenue a year than a vendor generating $50 million in revenue a year. What goes against this theory, however, is the fact that Amazon has historically not been known as being a company that optimizes for profit. Furthermore, the vendor program has two major advantages for Amazon over the Seller program. These are control over inventory as well as control over price. Ensuring a broad selection and availability as well as competitive prices – specifically for the well known products in each category – is crucial for Amazon success with end consumers and Amazon has a lot more control over achieving this goal using the Vendor program than using the Seller program.
Theory 2: Amazon wants to push brands into brand registry to create a better shopping experience
As an open marketplace, everyone can sign up for the Seller program and start selling products on Amazon without any vetting. The advantage of these kinds of open marketplaces is that they attract a lot of participants (as there are currently millions of sellers on Amazon), which is good for Amazon. More sellers leads to increased selection and likely leads to lower prices due to increased competition. However, the disadvantage is that there is no control over the kind of participants that sign up (i.e. bad actors can sign up just as easily as good actors).
With Amazon’s ever-increasing gross merchandise volume (GMV), it has become more attractive for bad actors to join and game the system in recent years. Stories about fake reviews, counterfeit products and listing hijackings have raised the attention of the public. These developments worsen the shopping experience for end consumers and can eventually erode trust with end consumers which is why Amazon is eager to take fast and effective countermeasures.
Some of the countermeasures have been quite effective on an individual basis (e.g. the ban of incentivized reviews) but is seems that Amazon is planning to put their “brand registry” program at the core of its initiative to ensure a high quality shopping experience for end consumers. Essentially, the brand registry program gives more control to brands over the representation of their products and facilitates finding and reporting violations (e.g. brands will be able to remove fake or unauthorized sellers by searching for imitated logos and trademarks). With this additional control, brands can ensure a good shopping experience for their clients which will help to maintain the overall great shopping experience for consumers on Amazon.
After investing heavily into brand registry and adding a range of functionalities, Amazon has been promoting brand registry trying to get everyone that is eligible to sign up for the program (disclaimer: Sellics has worked together with the Brand Registry team in the past to promote brand registry to our users. We think that Brand Registry is a great program with a lot of relevant functionalities that comes at no extra cost).
It could be, that the most recent PO outage was another attempt to push more brands into brand registry. As outlined above, some of the vendors that were affected by the PO pause received a message that they have 60 days to sign up for brand registry if they want to continue receiving POs thereafter. The message also states that if the Vendor cannot sign up for brand registry (because they are in fact not a brand but merely a reseller/distributor), they should move over the the seller side.
In conclusion, the PO outage could indicate that Amazon wants to push all brands into brand registry and only wants to work with registered brands in the Vendor program while all selling partners without brand registry should sell via the Seller program. While this could be primarily be driven by a desire to ensure a great shopping experience for consumers, it could be that there are further motivations behind this move (see theory 3 below).
Theory 3: Amazon is working on a unification of the Seller and Vendor program in a project called “One Vendor”
In a third theory, the PO stop could be part of a bigger plan that has been labeled and discussed in the media as the “One Vendor” project. Recode was the first to report about an internal Amazon project called “One Vendor” which should “essentially treat the Amazon retail platform as a single online store rather than one that is separated on the back end into Amazon Retail and the Amazon Marketplace.” Since Recode broke the news, there have been more articles and discussions around a potential unification of the seller and vendor programs. However, as with many of the discussions about the PO pause, everything is vague and lacks details about what a potential “unification of the seller and vendor program” would actually look like in practice.
Some speculate that it is a mere change of the back-end and the UI that is used by selling partners (i.e. Seller Central vs. Vendor Central). Others speculate that Amazon will have the right to chose, on an individual SKU basis, which products they want to source through the vendor program and which ones must be sold via the seller program. The latter one would be a lot more intrusive to the selling partners as it would mean a significant change in business models. Effectively every selling partner is having both a B2C business (via the seller program) and a B2B business (via the vendor program). From our point of view it seems that “One Vendor” is used for a wide range of different scenarios and that there is no consensus in the industry as to what “One Vendor” actually means.
Amazon’s official statement regarding the “One Vendor” rumors is as follows:
“Our mission is to build the best shopping experience for customers, with unbeatable prices, selection, and convenience. We aspire to work with every brand owner and reseller. To do this, we must deliver an experience that is easy and efficient for the millions of brands and small businesses selling through our stores. While we’ve been working to standardize the products, tools and services we offer to our selling partners on Amazon, there is no program called “One Vendor.”
This statement is helpful in the way that Amazon is acknowledging a certain trend to standardization. However, it is not helpful in understanding the magnitude of that trend as it is denouncing the existence of a “One Vendor” program. So, can vendors expect significant changes to their business on Amazon or not? We want to try to answer this question by looking at the historic developments and the bigger context.
When Amazon started selling products online in the 90s, only the vendor program existed. The seller program was introduced a few years later in the early/mid 2000s in conjunction with the Amazon Marketplace. As Amazon believes in a decentralized organisational structure and likes to create competition in order to achieve better outcomes, the seller and the vendor organisations have been split and were in fact competing with one another. Initially, the differences between the seller and vendor programs were quite significant. For example, only vendors could benefit from Amazon’s logistics and vendors had access to greater marketing tools. However, with the rollout of fulfilment by Amazon (“FBA”) and the increased accessibility of marketing tools (e.g. Sponsored Products) for sellers, the difference between the seller and the vendor program began to shrink.
Nowadays, the differences in the two programs are primarily in the relationship between the Selling Partner and Amazon. For end consumers, the shopping experience of buying from a brand using the Vendor program versus a brand using the Seller program and FBA are basically non-existing. Selling partners increasingly questioned the difference between the programs (resulting in some brands choosing the seller program or even using a hybrid model with accounts on both sides).
It seems that not only selling partners but also Amazon have started to question this historic split:
“We’ve been working for some time on standardizing the products, tools and services we offer to the brands and resellers that sell on Amazon, and have made some organizational changes as a result” said Amazon in a statement to Bloomberg.
The most obvious organizational change was that the seller and vendor branches used to be two separate organizations with an individual lead (Doug Herrington for the Vendor side, Sebastian Gunningham for the Seller side). This structure was changed in early 2018 with the seller organization reporting to Doug Herrington and Sebastian Gunningham leaving Amazon for WeWork, effectively merging the vendor and seller organizations.
This fundamental change in the organization indicates a broader trend to unify the seller and vendor programs. We think that is likely that Amazon will merge/replace services that are redundant on both sides (e.g. A+ Content for vendors and Enhanced Brand Content for sellers). However, we don’t think that the changes will go so far as making every selling partner both a seller for some products and a vendor for other products. The implications of such a change for large organizations that are used to work exclusively in B2B relationships would be so far reaching that it would take months if not years for them to set up the required processes and adapt to such a change.
Amazon is a complex organization with many decision factors.
So which theory is the right one? The reality is we don’t know, and we think that no one else except a few people inside Amazon really know. However, we don’t think that there is one singular reason behind the PO pause. Most likely, all three theories mentioned above are somehow related and have all been contributing to the PO outage. It seems plausible that there is a fundamental trend inside of Amazon to unify the selling experience across the seller and the vendor program and having a stronger distinction between brands with brand registry and other selling partner without brand registry as well as increasing profitability are just part of this larger trend.
Part III: What Should Vendors Do?
The most accurate description of the current environment for Vendors on Amazon is probably “uncertainty”. Uncertain environments make it difficult to make large and long term investments as one could be moving in the completely wrong direction. Broadly speaking, we think that there are two things vendors can do at this point:
1) Gather as much information as possible to reduce uncertainty.
2) Prepare an action plan for different scenarios in order to be as prepared as possible for new developments.
We have collected a few actionable items that Vendors can take.
In an environment of high uncertainty, yes, it is time to take action and calculated small steps to remain successful on the Amazon marketplace. The way we see it there are five options available at the moment.
1) Enroll for brand registry.
Everyone that is eligible should enroll for brand registry. It seems to be clear that this will be a key element of the future landscape of Amazon. This is also true for all international vendors as well as all sellers.
2) Stay up to date about new developments.
Don’t get caught blindsided again. Pay close attention to any messages and actions from Amazon to see if there are patterns that could indicate potential changes. We will share our opinion on new developments in our newsletter so sign up to get all the latest Amazon updates to help you stay informed.
3) Open a Seller Central account or at least think about the implications it would have on your business. Vendors might want to create a Seller Central account to have a backup option.
It is unclear if Amazon will allow hybrids for very much longer as Amazon has been increasingly restrictive of the Hybrid Model (i.e. running seller and vendor accounts simultaneously). If you don’t want to open a seller account right away, you should at least think through what implications it would have for your business if you needed to do it at some point. We have created a step-by-step guide for Vendors that are considering moving to the Seller side. You may also want to check out our partner agencies for Amazon if you need support with this process.
4) Look for distributors or alternative setups.
If creating a seller account is not an option, then working with a distributor(s) to run an external seller account on behalf of your brand might be something to consider. This is probably the closest alternative to being a vendor. The only difference is that instead of Amazon issuing POs, they are issued by a distributor(s).