Amazon to Close 1P Distributor Vendor Accounts
Amazon have announced their plans to shake up its sourcing methods in procurement policy change, cutting out distribution partners.
Unlike third-party merchants, distributors purchase inventory from manufacturers or brands, before selling it on to Amazon. Brands choose to use distribution for a number of reasons including:
- Increased reach - access to a customer base and a sales team, to push their goods or service
- Improved operational efficiency - distributors are strategically located in multiple regions to streamline logistics.
- Access to value-added services - such as local technical support or customer services.
Distributors will add their margins for the services they are providing, making it more expensive for Amazon to source these products. The e-commerce giant has now become a distributor in its own right, amassing a dedicated consumer (and B2B) customer base and offering some of the world's best logistics solutions.
Unfortunately for distributors, this makes them redundant in the eyes of Amazon. By sourcing products directly from brand owners, Amazon will be able to negotiate better pricing and terms, as well as have more control over the quality and availability of the products.
- Competition from 3P sellers will increase for a period of time. Distributors will still hold stock and they will have shipments inbound for their Amazon forecast demand. Given they won't have Amazon Retail as a sales channel, the excess will most likely be sold at a discount to existing partners. This will include Amazon 3P sellers, selling through FBA/FBM.
- Distribution will still continue. Amazon did caveat their email with “We will continue to source products from wholesalers and distributors if they are the brand owner or have sole distribution rights.” In addition, distributors may still look to provide a logistical service for brands, with Amazon invoicing and negotiating with brands directly.
- This decision may leave some brands stranded. Brands may not have the knowledge or resources to be able to navigate Amazon strategically.
Tambo has Amazon at its core and has a team of specialists who are well-versed in the complexities of growing a profitable 1P or 2P business. We would love to hear from brands which may require any of our consultancy, advertising, managed service or content expertise.