After Amazon successfully put a majority of its retail “brick and mortar” competitors out of business, it is now cracking down on its own supply chain.
In Jeff Bezos latest move to boost flagging profits and razor-thin margins at the company’s core e-commerce business, Amazon abruptly stopped buying products over the past two weeks from many of its wholesale vendors, encouraging them to instead sell their products directly to consumers on Amazon’s marketplace, even if that means disrupting relationships with longtime suppliers and potentially limiting customer choice. And, according to Bloomberg which cited consultants who help clients sell on Amazon, thousands of vendors are affected.
The departure from the company’s traditional business model of serving as logistical middleman between buyers and sellers, is pushing suppliers directly onto the marketplace – rather than selling products itself – and lets Amazon offload the risk but more importantly, the cost of purchasing, storing and shipping the merchandise. Instead, leveraging its quasi-monopolistic scale, Amazon is moving to charge suppliers for these services while taking a commission on each transaction, resulting in much higher margins per transaction. The disruptive strategy is part of a larger effort to reduce overhead by getting more suppliers to use an automated self-service system that requires no input from Amazon managers.
Commenting on the change in the company’s traditional operating model, Amazon responded to Bloomberg that it regularly reviews its selling partner relationships “and may make changes when we see an opportunity to provide customers with improved selection, value and convenience.” What it meant is that it is now big enough to extract an even greater profit from each transaction as the company’s vendors have no other choice.
And while their options may be limited, the vendors were not only shocked by the change in strategy, they are also furious: the abrupt cancellation of orders prompted panic this week at the ShopTalk retail conference that drew more than 8,000 retailers, brands and consultants to Las Vegas.
Some attendees said Amazon stopped submitting routine orders last week for a variety of products, often without explanation. The drought continued this week, affecting more vendors and leaving them frustrated about the lack of communication from Amazon.
One vendor who has been selling products to Amazon for five years said he got a canned response when he inquired why his routine weekly purchase order never came through.