A few weeks ago, Amazon dropped a bomb on thousands of wholesalers, many of which depend on the world’s biggest retailer for their very existence. The company first suspended or canceled millions of dollars’ worth of weekly wholesale orders, pushing vendor partners to enroll with the Amazon Marketplace as third-party sellers rather than continue as a wholesale vendor.
Even though the company backpedaled just five days later, the episode has left vendors questioning their future. Was it a mistake? Poor communication? Or was it a hint at things to come?The situation has become a wake-up call to vendors that have become dangerously reliant on Amazon for the majority—if not the entirety—of their business. The company may have recanted now, but this absolutely could be what the future of Amazon dependence looks like.
Why? Amazon’s motives are clear: profitability and protecting its reputation. Over the last five years, 35% of its business has come from first-party, primarily branded, sellers through its Vendor portal, at least 50% of which has been Amazon private label. The rest—65% or an estimated $250 billion worth of business—is generated by Amazon Marketplace. By pushing third-party vendors to the Marketplace, Amazon accomplishes two key goals:
It saves money by offloading much of the back-end expenses. Marketplace merchants handle managing their own product pages, warehousing, fulfillment, shipping, returns and customer service. Merchants pay Amazon a commission, which averages around 15% on each sale. Lower expenses + higher commission volume = increased profits for Amazon.
It shores up its reputation. Amazon has been facing a lot of criticism lately for the large number of counterfeit products and questionable vendors selling through its Vendor portal. By pushing non-branded sellers to the Marketplace, the company can also offload that risk and responsibility. This, however, becomes a risk for Marketplace vendors that are selling legitimate products. It gives the subtle impression that the Marketplace is a bit of a Wild West, “buyer beware” situation, which could deter customers.
The reality is that the more brands go to sell on Amazon, the more they feed the beast. By putting so many eggs in the Amazon basket, companies will continue to be the victim of Amazon’s self-preserving and self-promoting strategy.
A better alternative: Build your own marketplace and take control of your own destiny. By turning your existing e-commerce site into a marketplace, you can benefit from the exact same profitability motive that’s driving Amazon’s strategy. As the adage goes: If you can’t beat ‘em, join ‘em.
By expanding your retail offerings to include complementary products sold by marketplace vendors, brands can offer a wider range of categories and more products that will attract a larger audience. And, with a commission-based marketplace platform that includes streamlined, self-service tools for vendor onboarding, management and customer service, you, too can control overhead costs and grow revenue to increase profitability with very little hands-on effort.
Operating your own marketplace allows brands to diversify their retail portfolio and eliminates dependency on a third-party platform, while also creating more opportunities to diversify revenue streams.
But, the longer you wait, the greater the likelihood you’ll get burned by another Amazon shift.
If you’re ready to take control of your own destiny, diversify your retail distribution and your revenue stream, Mirakl can help. With our turnkey marketplace platform, getting started is a snap. We’ve done all the heavy lifting for you to get your project off the ground and running quickly and smoothly. With over 700 features, our state-of-the-art platform provides an outstanding customer experience right out of the box, along with self-service vendor onboarding and management, extensive reporting and insights, ironclad security and a complete team of experts at your disposal to ensure both a successful deployment and growth.
Ready to stop holding your breath every Sunday, waiting for your Amazon order to come in? Give us a call today.
Written by Adrien Nussenbaum
Graduated from HEC Paris, Adrien Nussenbaum started his career with Paribas in Hong-Kong. He then went on to co-found All Instant, an instant messaging solution that was later sold in 2003. While with Deloitte, as part of the restructuring team, he advised many retailers who were in the throes of company turnarounds and transformations until 2005.