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Amazon ousted thousands of merchants with no notice — showing the danger of relying on the shopping platform

12 Mar 2019

Thousands of merchants that sell on Amazon woke up to a rude surprise Monday morning, March 4: a message that Amazon was no longer placing orders for their products and, in some cases, that their account was being shut down.

The out-of-nowhere move left some vendors reeling, searching for answers on why their business with Amazon changed drastically overnight.

In some instances, these vendors — the term used for brands and other merchants that sell products to Amazon at wholesale prices — were simply told that Amazon wouldn’t be placing its weekly orders for their products like it normally does. In others, Amazon instructed vendors that if they wanted to keep selling their products on the platform, they should set up a “seller account” where they would sell goods directly to Amazon customers, rather than to the company itself.

Amazon has not provided a detailed explanation for its the actions, saying only in a statement to Recode: “We regularly review our selling partner relationships and may make changes when we see an opportunity to provide customers with improved selection, value, and convenience.”

But some of the responses merchants received from Amazon representatives provide potential answers. A client of Ideoclick, an agency that helps brands sell and advertise on Amazon, received a reply from an Amazon representative that hinted that the move may be related to a profitability push. It is widely believed that Amazon generates more profit on items sold to Amazon customers directly from third-party merchants than when Amazon buys the inventory and then sells it itself.

Others, like the analyst Eamon Kelly of Edgewater Research, claim the timing of the actions may have been connected to an anti-counterfeit initiative. Amazon last week publicized several tools targeting counterfeit products on its platform.

“Our work suggests the catalyst for beginning this process was triggered by an apparent legal review related to counterfeit products,” Kelly wrote earlier this week in a research note for the firm’s investment clients.

Either way, the drastic actions are the latest example of how the fortunes of brands and merchants on Amazon’s platforms can change on a whim. In November, Recode reported that Amazon was cracking down on midsize and large brands that wanted to sell directly to Amazon customers on the Amazon Marketplace rather than selling at wholesale prices to Amazon itself.

“Amazon is telling these brands that they can no longer sell directly to customers as an independent seller on the Amazon platform for third-party merchants known as the Amazon Marketplace,” Recode reported at the time. “The advantages to selling on the Marketplace include the ability to control the sale price of the goods, run price promotions, and get more data about how products are performing and who’s buying them.”

Now Amazon is pushing many smaller merchants and brands in the other direction — from the implied stability of selling large quantities of products to Amazon weekly as a wholesale vendor to setting up shop on the Amazon Marketplace themselves. For months, sources had told Recode that Amazon planned to eventually push some of its smaller wholesale partners to the Marketplace side of the business.

Selling directly to shoppers on the Marketplace can give brands more control over pricing and access to more data, but it also requires a level of expertise that some merchants don’t have. Amazon Marketplace sellers also typically have to pay fees to Amazon to store and ship their products if they want them to be available for Amazon Prime express shipping.

Around 25 percent of Ideoclick’s clients who have wholesale arrangements with Amazon were affected by the past week’s actions, company executives said. Almost all of those brands do less than $5 million in annual sales with Amazon.

Ideoclick’s Andrea Leigh, a former Amazon executive, said some of her firm’s clients were happy to now have the freedom to sell directly to Amazon shoppers instead of to Amazon itself. But the abrupt nature of the changes, with zero advance notice and thin explanations after the fact, was troubling.

“Other retailers might have taken a different approach from a communications standpoint,” Leigh said.

By Jason Del Rey

Source: Recode