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You may have heard the rumour that Amazon is planning to purge many of its small suppliers, forcing them to start selling directly to consumers.
It’s expected that small-time vendors (companies selling their goods directly to Amazon on a wholesale basis) will have to make the switch from using the Vendor Central platform to the Seller Central platform.
Just to be totally clear, this proposal directly impacts on vendors only, not third-party or FBA sellers (however, they will be impacted indirectly. I’ll cover this below).
This rumoured overhaul by Amazon has sent shockwaves through the eCommerce industry and caused widespread panic among vendors and third-party sellers alike.
But it’s not totally unexpected. Seller Central is a more profitable platform for Amazon and requires less resources to maintain. Shifting vendors to Seller Central means they can charge them a commission on each sales and fees for FBA, should they use the fulfillment service.
I feel sorry for everyone who’s been caught out by this news, but I’m not surprised that Amazon seems to be prioritizing high-value vendors and, of course, profits.
But before you freak out and abandon your eCommerce enterprise, let’s take a deep breath and look at exactly what’s being proposed and what you can do to safeguard your business.
What is the Amazon vendor purge?
First of all, it’s a rumour that was reported by Bloomberg in May, 2019, and Amazon has responded by saying it’s not true. So there is a chance that Bloomberg is wrong.
But the fact that a vendor purge would likely benefit Amazon financially, it’s highly likely that there’s some truth to this rumour. So it’s best to be prepared.
What is the reported “vendor purge”?
Amazon is reportedly going to make low-value, or small-scale suppliers that use the Vendor Central platform transition to Seller Central and become third-party, direct-to-consumer sellers.
“Amazon’s aim is to cut costs and focus wholesale purchasing on major brands like Procter & Gamble, Sony and Lego,” Bloomberg reported.
“That will ensure the company has adequate supplies of must-have merchandise and help it compete with the likes of Walmart, Target and Best Buy.”
What does this mean for Amazon vendors and sellers?
This means that potentially thousands of suppliers that have relied on selling wholesale goods to Amazon for resale are going to have to rethink their business model.
It’s reported that brands selling on Vendor Central with annual sales under $10 million are most at risk. In short, most brands selling on Vendor Central at risk.
They will have to shift to selling directly to customers via the Seller Central marketplace, rather than filling bulk orders from Amazon.
For sellers, this means they’re potentially going to face an influx of competition. It’s likely that thousands of vendors will transition to Seller Central and may be able to compete more aggressively on price.
So this rumoured change could have serious impacts on vendors that are being forced to transition and existing third-party sellers that rely on the Amazon platform.
The risk of building a business on a third-party marketplace is that the marketplace can change the rules whenever it wants. That seems to be what’s happening here.
How to survive the Amazon vendor purge
The possibility of your business and livelihood being threatened by a policy change can be distressing. It’s like when the office manager calls a meeting and announces that there’s going to be a restructure and you don’t know if you job is safe or not.
The good news is that you can weather this storm. If you’re a vendor, you might have just lost your biggest customer (Amazon), but you’ve still got your products and you know how to run an online business.
If you’re a seller, you might be about to face a new wave of competition, but you’ve carved out a niche on Amazon and you know how to sell direct to consumer.
What should vendors do?
If you’re a vendor who’s affected by this proposed policy change, there are several things you should be doing to survive the supplier purge.
Prepare to transition to Seller Central
Yes, it’s just a rumour at this stage, but you should act as if it’s true and start planning your transition to Seller Central. This is what you need to do:
- Set up a seller central account
- Consider signing up for Amazon FBA
- Review profitability your products after fees and FBA costs
- Study seller central inside-out
- Overhaul your sales processes
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Setting up a seller central account
This is the easy part. Just head over to Amazon and sign up for a Seller Central account. You’ll just need the usual tax and company identity information.
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Consider signing up for Amazon FBA
Amazon FBA is a simple, seamless way to fulfill your orders and get goods to your customers quickly. You’ll need to decide if you want to use this service or fulfill orders yourself.
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Review product profitability
Selling direct-to-consumer is a different beast to selling wholesale items to Amazon. You’ll need to look at each of your products and decide how you would price them for direct-to-consumer sales. Products priced under $10 typically aren’t profitable if you’re using Amazon FBA, so that’s something to keep in mind.
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Study seller central inside-out
You need to learn how Seller Central works, so take a close look at all of the tools and features that are going to help you make sales and keep your business alive.
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Overhaul your sales and marketing processes
You’ll be going from filling bulk orders to potentially handling one order at a time. You need to figure out how you’re going to move stock at a rate that keeps the cash flowing. This includes implementing sales, marketing, and customer service strategies that you haven’t had to rely on as a vendor.
Reduce your reliance on a single platform
Now is probably a good time to consider scaling back your reliance on Amazon. Building a business on a third-party platform has its advantages, but it can also be risky if it’s the only platform you use.
You could look at spreading your business across several third-party marketplaces, like eBay, Rakuten, Etsy etc.
As a wholesale supplier, the best option is to start your own online store. It’s more of an investment, but that way you get all of the profits and you aren’t relying on a third-party marketplace that can pull the rug out from under you at any time.
Check out our guides to the best places to sell online in 2020 and starting an online store
What should sellers do?
Sellers will need to prepare for an influx of competition on Seller Central. Thousands of vendors making the move to third-party sellers is going to heat-up Amazon’s marketplace. If Amazon is your sole platform, you’re going to want to optimize your product listings and sales processes and consider selling across multiple platforms.
Optimize your Amazon business
The impending surge of competition on Seller Central means now is the perfect time to take a close look at your business and make all of the tweaks and improvements that you’ve been putting off for months. You need to make sure your product listings are clean and have high-quality photos and sales copy to ensure you’re putting your best foot forward.
You should also look for opportunities to price more competitively and think about implementing sales and marketing strategies that are going to keep customers coming in when the changes happen.
Check out our complete guide to selling on Amazon for tips and tricks you can use
Reduce your reliance on Amazon
It’s also a good time for you to start diversifying your online business and not relying solely on Amazon. You can spread yourself across several third-party platforms or start your own online store. That way, if one platform decides to stings you with higher fees or a restrictive policy change, you’ve got a backup in place.
See the links above for resources that can help with this.
You’ve got this
The rumoured Amazon vendor purge is concerning for the people affected. It’s also concerning to see how much power Amazon has when it decides to change.
However, it doesn’t have to be the end of the world, and certainly not the end of your eCommerce venture.
If you plan, adapt and diversify your business, there’s no reason why you can’t weather this storm and overcome this obstacle.
As this story develops, we’ll be sure to provide more advice for how to keep your online business alive and thriving.
If you have any questions or suggestions, please comment below and I’ll do my best to respond.
