Name your favorite family rivalry; Hatfield’s vs McCoy’s, North vs South Korea, Cane vs Abel, Serena vs Venus.  Most end poorly but Amazon’s famous Vendor (aka 1P) vs Merchant (aka 3P) divisional competition is one of the core reasons for their amazing online success.  That rivalry has taken a major pivot this month and if your brand isn’t on top of it, you stand to lose out.

Over 10,000 accounts that had been selling to Amazon suddenly saw their PO’s dry up this month.  Many then received an email from the 1P team told them they may not buy from them anymore and recommend they consider selling on the 3P side!  Was this a secret coupe?  A digital détente? 

Many were left scratching their heads as to what was going on.  We’re not. 

The Back Story

As most people know, when you buy an item on Amazon it doesn’t necessarily get shipped by Amazon.  3rd party sellers (3P) make up 55-65% of Amazon orders.

In fact, the majority of items on Amazon have multiple sellers including Amazon and a host of sellers.  A top-selling item can have 100+ sellers.   At the highest-level, Amazon loved this.  They never run out of stock and sellers (including Amazon) are constantly battling to get the sale.

While the ‘top’ may have loved it, the two Amazon groups hated it.  It was no secret that 1P buyers openly told brands they could not sell as a 3P Merchant (despite Amazon having clear rules they could) and regularly trashed-talked the 3P Merchant-side whenever they could. 

On the 3P side, the dislike and distrust was a mirror image.  Not only was there the constant buy box battle, but whenever a brand’s product started to gain traction on the Merchant side, guess who mysteriously added it on the Vendor side the next week?  Yep the 1Pers.

This sudden shift was not unexpected.  Amazon has been hinting at reducing the number of companies it buys from over the last few years.  They took some initial steps including scrapping Vendor Express in 2018.  However, there’s more to the back story:

  1. Executive Structure: Amazon quietly did some internal re-organizing last year, bringing the 1P and 3P groups under the same core leadership.    
  2. Warehouse Space: Amazon still doesn’t have enough room to manage its growth.  Not only do they have to store their own purchases, but 30-40% of merchants use FBA (consigning their inventory to Amazon warehouses).
  3. Success of Seller Fulfilled Prime: Last year was the first full year of “Seller Fulfilled Prime” a new program that lets a 3P ship any item they sell as ‘Prime’ as long as they can deliver it in 2 days.  The big win for Amazon was letting merchants pick their geographic region; even a small seller can afford 2-day delivery in their 1-day UPS/FedEx zone.
  4. 1P vs 3P Margin for Amazon – Amazon always gets 15% of 3P sale regardless of the sale price or shipping cost. This can often mean Amazon makes more on a Merchant sale than an item they sell (especially items that are heavily, bulky, and low priced).
  5. Overall Cost of running the 1P group vs the 3P group – A seasoned, smart, retail buyer is a hot commodity these days. Amazon always had a problem with buyer turnover and we suspect that’s a factor in this shift.  The 3P side simply requires less contact with merchants; a 3P doesn’t even get a dedicated contact until they’re well over $10m a year.  We suspect a few heads are going to roll later this year.

 

Who got cut?

 

Yeoman has worked with 250+ brands on Amazon over the last decade. These range from huge brands to those selling less than $500k via 1P and as of this writing none (as in zero) have been turned off.  Why?  Simple – they are all the original brand manufacturer for the products Amazon is buying. 

The bulk of the notices have gone out to two types of accounts:

  • Classic Distributors who sell multiple brands: These small and mid-tier companies have likely been selling to Amazon for years, adding new products and filling gaps when brands can’t deliver.  They’re at a high risk of losing their business, especially if the 3P market can offer these products instead
  • Heavy, Bulky, or Cheap items: Brands are not 100% immune from the cut.  Shipping, storage, and contribution margin appear to play a big role in the decision, especially if the 1P never offered drop shipping as an option.  If your product line is all three; you better keep your buyer happy.

 

What should a brand do

Yeoman has long advocated that a brand needs to manage and maintain a presence and strategy on both sides of Amazon.  Solely focusing on either side never makes sense for a brand.  Pivots like this have happened before; you always need to have a plan for both.  

Yeoman has analyzed over 200,000 brand listings on Amazon.  Here’ the reality of mid-sized brands sales on Amazon –

  1. 50-60%: Of actively selling SKUs on Amazon are in the brands primary 1P account
    1. Majority are also sold by multiple 3P sellers
  2. 10-30%: Of actively selling SKUs are sold by Amazon but not purchased from the brand
    1. That’s your existing distributors
  3. 40-70%: Of active selling SKUs are not sold by Amazon and instead are Merchant-created SKUs
    1. Typically bundles, variants, and kits, but can also be rogue listings

Let that sink in.  If you’re selling $5m on Amazon (either as 3P or 1P), you likely have another $3-7m getting sold via your channel partners.  Mess this up and you’ll lose that revenue to another brand, including Amazon’s own private labels.

This pivot has the potential of weakening your overall sales dramatically in 3 ways:

 

  1. Gaps in Catalog Coverage – Every brand should always have a handle on their product set on Amazon. Now is the perfect time to do a deep dive and see if any items have had a drop off. We’re not just talking about your 1P or 3P account – make sure your active items have someone selling them!  You should also review top selling items that you’re not offering via 1P or 3P.  Start listing them immediately (or make sure a partner is).

 

  1. Drop in Marketing Activity - Keeping an active and budget-smart Amazon marketing plan is a key factor in competing on Amazon. Yeoman always recommends maximizing the coverage for your brands, getting the most impressions for the best price.  It not only helps drive longer tail sales, but it also helps create a better ‘on page’ positioning for your top sellers.  Most (but not all) 1P accounts did some level of marketing.  Your team needs to re-build, re-assess, and expand whatever AMS programs your running now to fill that potential gap.

 

  1. New Brand Registry Requests – This is a scary one.  We’ve seen multiple request from brand distributors coming in over the past week asking them to give them access to Amazon’s Brand Registry.  The reason?  One of Amazon’s notes sent out to sellers telling them that if they don’t register in Brand Registry within 60 days, they may not get automatic POs going forward.   Yeoman recommends NOT giving any distributor Brand Registry rights for now.  Giving someone rights (even basic Brand Agent rights) means:
  • Amazon sees them as authorized for that brand
  • They immediately become authorized for 100% of the items in those brands – they will get the ‘add these products to your catalog’ in their 1P account
  • They have creating rights for any product in that brand
  • They will compete with you directly for items you are already selling

This is classic Amazon.  They don’t have a firm set of rules yet, nor did they say someone won’t get a PO.  They just said they ‘prefer’ Brand Registry owners.  

Next Steps

 

This is an opportunity to strengthen your direct relationship with Amazon on both sides of the fence.   Done right, this will not only grow your overall brand, but could also help mitigate some of the ‘race to the bottom’ pricing that occurs on Amazon.

Left unchecked, you’ll see your sales drop further and you’ll be back complaining about the other ½ of Amazon’s that’s messing up your sales.  That family argument is fast fading away, time to make peace and get back to selling.

Michael Healey is the President of Yeoman Technology Group and has 30 years of channel and brand management.  Yeoman specializes in Amazon brand strategy and execution.

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