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The Future of Amazon 1P

March 21, 2019 | Posted By Alasdair McLean-Foreman

Top Takeaways from the Interview:

  • Recently, hundreds of vendors were told Amazon would no longer be purchasing from them.
  • Amazon is trying to shift from 1P to 3P, as the future of retail moves to direct-to-consumer model.
  • This reflects an ongoing trend of Amazon optimizing for their own profitability and consumer experience.
  • Vendors need to start to thinking like sellers, investing in advertising and optimization tools.

Video Transcription:

Alasdair:

It’s been a crazy week in the world of Amazon retail. So last week, hundreds of vendors, vendors that might have been working with Amazon for years, received an automated message … Well, what looked like an automated, almost like a canned email from Amazon saying…

Robbie:

Right, it wasn’t very personalized.

Alasdair:

Can you imagine working with Amazon, maybe you’ve been selling to Amazon for ten years, shipping your goods to Amazon wholesale. You come into the office one day last week, and you receive an email from Vendor Central that says, “Robbie, thank you for all the work that you’ve been doing. We’re no longer going to be purchasing any goods from you. No more purchase orders, good luck.” And that sounds extreme, but that’s basically what a lot of Amazon vendors received, and it’s caused a lot of fear, uncertainty, a lot of stress.

Alasdair:

We’ve seen articles on Bloomberg about this, I’ve had a lot of messages from vendors reaching out. We’ve had a lot of our agency partners trying to help out. It’s been pretty wild.

Robbie:

Yeah, and for my perspective, and I think everyone’s sort of wondering … I want to know why Amazon is doing this, what is the ultimate goal or push, what are the implications of why this is happening?

Alasdair:

Yeah, I mean, I think that’s a good place to start. So, I’ve been working with Amazon since 2003, I was one of the first third-party sellers, long, long time ago. And we’ve seen these changes and shifts by Amazon that’s made it the best company in the world, facing consumers. And I think what we’re seeing here is that maniacal obsession to be the best consumer experience, and Amazon’s optimizing for its own profitability.

So what they’re trying to do, and this was in a lot of these articles, in the Bloomberg article specifically, was around Amazon’s focus around profitability. So they’re trying to shift their inventory, Amazon’s inventory, off of their balance sheet and use the more profitable third-party ecosystem. Now, if you’re a 1P vendor, and you don’t know much about selling 3P because you’ve always been a wholesaler of goods, it’s really, really intimidating, and really, really scary.

Because, for example, when I first started out on the Amazon platform, it was virtually 0% 3P, and now today it’s closer to 60% 3P. So this shift has happened. So, in terms of answering why this is a shift. We’re seeing a shift to direct-to-consumer, we’re seeing a shift from 1P, to 3P. That’s happened over the last 16 years that I’ve witnessed. But in the last week, it’s clear that Amazon is trying to accelerate that.

So, the underlying reason is profitability. And I think, if you’re a vendor, the toughest part … There’s a lot of volume that’s gone through 1P. So, to suddenly switch that overnight to 3P is, I think, the biggest shock to the system.

Robbie:

Yeah, I think it makes a lot of sense from the trends that we’re seeing. Is there any takeaways, actions … If I’m a 1P vendor, or even if I’m a third party vendor, what actions or immediate things should I be thinking about at this time?

Alasdair:

Yeah, I think starting from the very high level, understanding that the future of retail is going to be direct-to-consumer. I think we see that across the spectrum. You see these very, very large brands like Gap spinning out Old Navy to be more competitive. Taking a gamble, splitting up into six different divisions. These acquisitions around direct to consumer companies.

So, at the very, very highest level, understanding that over time a direct-to-consumer model is going to be more efficient, which is where retail is heading. In the short term, if you’re on the 1P side, really looking to learn how to execute as a 3P. And become a seller, basically. At our company, Teikametrics, I mean that’s our genesis. That’s how we started as a seller.

And I think trying to understand those different optimization points, I think if you’re a seller in 3P, you’ve got to be thinking about a lot more in terms of restocking your inventory, calculating your own gross margins, calculating the effects of advertising. And you’ve got to start to invest in that. So, the action items would be to internally have a strategy to think about direct-to-consumer, fire 3P, potentially engage in an agency that knows how to play that game.

We’ve certainly developed technology around what we call a retail optimization platform, which is a suite of tools specifically for 3P optimization, and we’ve helped a lot of companies with the 1P 3P shift. We also work with 1Ps as well, which is why we’re very conscious of what’s happened. So yeah, I think the summary here is for vendors to start to think like sellers. Start to think about the direct-to-consumer model, and actually, most recently, even over the weekend, we’ve seen a lot of reinstatements from vendors who’ve received notices from Amazon saying, actually, to register for Amazon Brand Registry.

And I think what we’re seeing there is Amazon giving a little bit more time. It feels like there was just so much of a backlash from vendors, quite rightly so, that Amazon’s going to give the vendors a little bit more time. But I don’t think that means that it’s going back to the status quo. I think we’re undoubtedly going to see a shift from 1P to 3P, so preparing ahead is really important.

Robbie:

Yeah, while all these giant waves in news and updates come out, we want to be as transparent and help as many people in the community as possible. The retail optimization platform, Flywheel, this technology we’re working on, but we also have a team here where we try and help as many people get this information.

Alasdair:

Yeah, thanks for putting that out there Robbie. And we’re interested in…

Robbie:

As our team walks by and we’re joined by them here in Boston.

Alasdair:

Yeah, absolutely. Yeah, so we’ve got a great team here in the Boston office. We’re actually going to be attending the Prosper show in Las Vegas on March 17th through the 19th. Later on we’re going to be in IRCE in Chicago, really welcome any specific outreach, certainly excited to have these conversations myself. You can contact me on Linkedin, and we’re here to help. This is what our company has been born to do, to help sellers optimize for profitability. Amazon is optimizing for its own profitability, clearly, so we’re here to help. We put a lot of investment into the technology to do so, and yeah, we’re here for you guys.

Robbie:

Yeah, so thanks, and please let us know what you guys are thinking, chime into the conversation and let us know. Cheers.