Amazon gave the seller community a collective heart attack recently when they shut down thousands of Vendor Central accounts with no warning. While most were back to selling again by the end of the week, Amazon warned them that in 60 days everything was going to change. This move by Amazon affects more than just direct sellers to Amazon. Read on to see the whole vision and where your business fits in.
Many companies who sell direct to Amazon (1P) recently awoke one morning to find themselves suspended.
Greetings from Amazon Direct Fulfillment,
Your direct fulfillment warehouse #### has been suspended. As a result of the suspension, the inventory for all items in this warehouse is set to zero; no new orders will be sent until it is reinstated.
If you have any open orders, please do ship them.
The Amazon Direct Fulfillment Team
Sellers were stunned. No other reason or explanation was given. Inquiries to Vendor Central’s support department went unanswered. Vendors had inventory they suddenly couldn’t move.
Then, a week later, they received another bombshell from Amazon:
We are writing to confirm we have resumed ordering from your account following a temporary pause. We apologize for any inconvenience.
We note that you are not yet enrolled in Brand Registry. We prefer to source products directly from brand owners, so enrollment in Brand Registry will be important for vendors going forward.
By registering in Brand Registry, our systems will be able to automatically issue Purchase Orders for your branded products as needed. Given this is new, we will continue ordering from your Vendor Account for the next 60 days to give you time to enroll in Brand Registry.
If you are a brand owner, you can enroll in Brand Registry here.
If you are not a brand owner, we encourage you to consider selling your products directly to customers in our store via Seller Central. If you do not already have a Seller Central account, you can get started by registering here
If you have any questions, please reach out to Vendor Support through Vendor Central
Amazon Vendor Central
That day, Amazon resumed ordering from its vendors. Oops.
In addition, Amazon Retail (Vendor Central) has reached out to suppliers recently and told them they will no longer accept products where they (Amazon) can’t realize profit because the wholesale price is too high. They’ve put intense pressure on suppliers to lower their prices or leave.
Amazon’s Keeping Brands, Shedding Distributors and Wholesalers
What’s happening here?
- Brand Registry will replace/merge with Vendor Central in about 60 days and be limited to brands.
- Distributors and resellers are being kicked out to Seller Central. Amazon just delivered a very powerful warning to them. Having sellers in the middle means higher prices and Amazon is aggressively cutting prices.
- Amazon is continuing to replace humans with machine learning (more on that in our next blog post about Amazon’s Zero program).
- Amazon is taking a huge and very sorely needed step towards thwarting bad actors on its platform.
- Amazon is letting third-party sellers take over more and more of the platform in terms of product variety…and failures. The resellers take the risks on new products and Amazon swoops in later for the successes and either buys direct from the brand or duplicates the product under one of its private label brands. While this has always been true, it will escalate.
- Amazon is ridding itself of Retail products that are CRAP (Can’t Realize A Profit) for them.
- Amazon is taking pre-emptive moves to reduce its counterfeit liability and to potentially avoid future regulation.
Let’s dig in.
In the great Kabuki dance that is Amazon, we are left to interpret the company’s intentions from cryptic notes, news articles and stories about other activities to fill in some gaps. I’m making educated guesses, in other words, colored by experience working with Amazon on behalf of our clients.
BRANDS VS. RESELLERS
There’s no ambiguity in Amazon’s letter to its vendors. They want brands and they want distributors and other resellers to go to Seller Central as third-party sellers. Why? For one thing, they can be sure that their inventory is authentic that way. For another, by going direct to brands and cutting out the middle players, Amazon hopes to reduce costs and lower prices on the platform for buyers.
This has been their strategy for years, but Amazon maintained many distributor relationships because they simply could not buy the brands they wanted any other way. There are many brands who refuse to sell to Amazon. They don’t like the terms of the contract, they don’t like turning over control of their marketing and pricing to Amazon, and they prefer to operate with the distribution model they’ve set up for themselves worldwide.
With this merging of Vendor Central and Brand Registry, Amazon will either keep some distributor relationships as suppliers, or stop selling brands on the platform as itself. I believe that they will let a lot of products go to Seller Central. In many cases, they make more money off third-party sales than selling themselves. A recent news story on CNBC about Amazon ads talked about how Amazon is pressuring their suppliers to lower wholesale prices so they can realize a profit on those products. Amazon is blocking ads from unprofitable products to increase the pressure. If all those sellers become third-party, Amazon will realize a profit on every sale.
This is bad news for resellers. The advantage to selling Amazon direct is that they make large orders and pay for them. There are no returns to deal with and no customer service to provide. Amazon handles the marketing. Amazon also has the right to send back a new product that isn’t selling (i.e., they ordered too many units), but that’s not the norm. The supplier’s products are top dog on any listing because they are Amazon. Amazon vendors will find selling on the third-party platform more competitive and, possibly, less profitable.
As more and more brands come to the platform to sell directly, resellers will also feel the pinch from having to compete with their supplier.
COUNTERFEITERS AND OTHER BAD ACTORS
For years now, we’ve complained to Amazon about all the bad actors abusing Vendor Central to damage the accounts of other sellers. In China they buy, sell and rent (!) Vendor accounts like monopoly houses because they want to exploit the power of this platform. Access to a Vendor Central account gives bad actors a license to destroy with impunity. They can change any listing in the catalog (not just their own) and the Amazon system sees it as if it were Amazon Retail making that change.
One of my clients has had this happen to him in a horrible way. Not only did the bad actor change all the images for my client’s products (ALL images, ALL listings!), he changed them to offensive, graphic and disturbing pictures. Buyers complained like crazy. Our client’s listings tanked, and Amazon cannot seem to stop it from happening to him repeatedly. We are petitioning Amazon to put a lock on his listings so only changes from Brand Registry will be recognized. They can do this, but they are reluctant to do it. It’s crazy. That should be the Default for Brand Registry!
My hope is that this merging is Amazon’s way of correcting that loophole in their system. If Brand Owner changes have the same priority as Amazon Retail, then brands can keep bad actors away from their listings. Brand Registry only lets you make changes to YOUR brand’s listings, so that potential for abuse should be closed. Amazon has not directly said this is what is happening, but I’m optimistic.
This will also help resellers of branded goods because they will not have to maintain constant vigilance on thousands of products in their portfolio for changes on their listings. They won’t be able to make listing changes on a brand registered product, but neither will anyone else.
Democratic presidential candidate Elizabeth Warren has a mission to regulate big tech businesses and has named Amazon as a target. King Bezos is worried. The company has been taking measures towards self-regulation such as no longer requiring price parity for items sold on the platform. [read that story here] In addition, it is now supporting sales tax measures nationwide that would define a marketplace and require marketplaces to gather sales tax instead of individual sellers. This is an abrupt about-face for notoriously anti-tax Amazon.
[PS. Click here if you want to see an example of Amazon working with states and sellers towards this cause. Courtesy of the Online Merchants Guild – a lobbying group for online sellers]
Giving brands greater control by merging the two platforms and introducing Project Zero could help convince lawmakers that Amazon does not need to be regulated.
What Does This Mean For Online Sellers?
If you’re a brand, this is probably good news or at least, neutral news. For distributors and resellers, however, it’s a shot across the bow that their sales model is not Amazon’s most preferred model. In addition, with more and more brands coming to the platform and selling directly to consumers or to Amazon, it will be harder for middlemen to make money. But with great change comes new opportunities:
- Resellers/Distributors – some sellers provide brand support and enforcement services to their suppliers to earn sales exclusives on the platform. I expect to see that trend escalate over the next year. Some sellers are taking the time to become authorized resellers by the brand which makes their Amazon lives easier. Others are negotiating product exclusives with their brand suppliers where the supplier creates a specific version of a hot product just for the reseller. There are plenty of opportunities for resellers willing to pivot.
- Liquidators – for those who buy liquidated inventory from non-authentic sources (i.e. not directly from the brand or authorized distributor) it will be harder and harder to sell on the platform. Most cannot survive a few inauthentic complaints because they don’t have invoices that can be tracked back to the brand. For those who buy closeouts from the brand, they can sell, but it is a hard model of constantly having to find new products to sell as the overstocks sell out. As the transparency program is adopted by more brands, that could make a liquidator’s life much easier because Amazon will know that it is genuine product if it has the code on it.
- Drop-shippers – for those who are buying directly from the brand or authorized distributor, they’ll be fine. Their receipts will be accepted. For all the ways we see drop-shippers getting it wrong on the platform, this will continue to be a difficult model with which to succeed. We had a client get shut down for one sale on his drop-ship account – Keebler cookies in vending machine packaging. He was buying from a large, well-known authorized distributor, but we had to write multiple appeals. Possibly, it was Keebler that filed the complaint – we were never sure – and it took a long time for it to get verified. With drop-shippers selling tens of thousands of SKUs, the nightmare of inauthentic and infringement complaints can be never-ending. It’s the biggest downside of this model. Some drop shippers are very successful, however, because they are buying directly from the brand or manufacturer licensed by the brand. They are selling on Amazon with permission. Where there is a clear and strong connection between the brand and seller, drop-shipping can be very lucrative.
- Retail arbitrage – With all this integration between Amazon and brands we’ve found that retail arbitrage receipts are being accepted again — and without the huge hassle that marked the last couple of years. As the transparency program becomes more widely adopted by brands, it will lead to fewer and fewer suspensions for retail arbitrage sellers who are buying from legitimate brick & mortar or click & mortar retailers. The code will tell Amazon that the product was originally shipped to Target, for example, and they’ll allow it to be sold on the platform.
- Common-law brands – If you are selling your own private label products and do not have registered trademarks, do it now. The control and marketing tools that Amazon is giving brands is worth the trouble and wait. It will give you a superpower over regular resellers. In addition, Amazon is MUCH more supportive of its brands vs. resellers when there are disputes. Lastly, if you don’t register your trademarks, someone else might and take away your privileges.
HOW CAN WE HELP YOU TODAY?
We are known for helping suspended sellers get reinstated, but our goal is to keep sellers from being suspended in the first place. We have more than 25 team members passionately working 7 days a week to protect Amazon sellers like you.
Contact us for specific advice on your situation:
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- Next speaking engagement – IRCE in June: Come meet Cynthia Stine in Chicago this summer: IRCE 2019 (June 25-28, McCormick Place, Chicago. Register here )
NEWS FROM EGP
- We’ve opened a new business in the Philippines to serve online sellers who want to recognize the cost savings of an international team of workers without the hassle of management. Our team handles a wide range of seller needs beyond Amazon compliance. Click here to find out more about this program.
- We are launching a brand enforcement tool in April that will take the pain and administrative hassle away from protecting your intellectual property rights on online sites like Amazon, Wal-Mart, eBay and many more. It is fully compliant and – most importantly – effective.
Our founder Cynthia Stine is working with the Online Merchant’s Guild to help change how states view online sellers from a tax perspective. Read OMG’s letter from the State of California’s Treasurers Office to California Governor Gavin Newsome.