Amazon has been reworking relationships with several of its long-time wholesale suppliers in a bid to cut costs, Bloomberg reported Tuesday. The plan is to buy from larger companies instead of smaller businesses.
Thousands of small suppliers that sell less than US$10 million annually on Amazon’s platform would lose bulk orders, while big brands like Procter & Gamble and Lego would benefit.
“Small suppliers that cannot comply with Amazon’s requirements will end up having a tougher time working with it,” commented Ray Wang, principal analyst at Constellation Research.
The company is “entering a period of rationalization and efficiency,” he told the E-Commerce Times. “It will target any area where you see massive commoditization.”
Large wholesale suppliers are not necessarily safe from the ax, however.
Amazon “will always focus on improving efficiency, and those partners that aren’t cost effective, regardless of size, will always be at risk,” observed Rob Enderle, principal analyst at the Enderle Group.
Amazon told Bloomberg speculation about a large scale reduction of vendors was “incorrect.”
How Amazon Could Benefit
If Amazon actually shifts away from smaller wholesale suppliers, those companies would be able to sell more items directly to consumers.
Other possible results of such a change:
- Reduction in the number of staff Amazon would need to manage vendor relationships, and to forecast and manage bulk orders;
- Streamlined inventory processes;
- An increase in Amazon’s commissions from direct sales the affected suppliers would make on its site;
- Charges for services such as packing and delivery; and
- An increase in the share of revenue Amazon’s marketplace would contribute to its bottom line. Currently, the marketplace gets 58 percent of Amazon’s e-commerce sales, Jeff Bezos said in his 2018 letter to shareholders last month.
The move probably will increase consumer satisfaction, Enderle told the E-Commerce Times, because “the small suppliers are often problematic.”
Problems include unauthorized selling of brand products to Amazon, shipment of counterfeit products, and sabotage against competitors through a variety of dirty tricks — all issues Amazon has invested considerable time and money to address.