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Bloomberg reports that Amazon, “determined to boost profits at the core e-commerce business,” has stopped purchasing products from wholesalers and instead “is encouraging vendors to instead sell directly to consumers on its marketplace.”

The story notes that “Amazon makes more money that way by offloading the cost of purchasing, storing and shipping products. Meanwhile, Amazon can charge suppliers for these services and take a commission on each transaction, which is much less risky than buying goods outright … Pushing more suppliers onto the marketplace is part of Amazon’s larger effort to reduce overhead by getting more suppliers to use an automated self-service system that requires no input from Amazon managers.”

Bloomberg makes the point that the Amazon move puts many of its vendors in a potential hole. If they’ve been counting on Amazon purchasing merchandise that they already have ordered, they’ll now be faced with selling those items on Amazon’s Marketplace, which complicates their revenue situation.

In what can only be called a semi-explanatory statement, Amazon said, “We regularly review our selling partner relationships and may make changes when we see an opportunity to provide customers with improved selection, value and convenience.”

Digiday points out that the change came as a surprise to many vendors when they “tens of thousands” of them “didn’t receive their weekly purchase order replenishments from the retailer.”

And, Digiday goes on: “Essentially, Amazon wants as much of its retail business to be as hands-off as possible. That means maximizing volume for its third-party marketplace, which is already growing faster than Amazon’s retail business. There, sellers can set up a direct business, monitor dashboards and use tools like Fulfilled by Amazon to enable Prime distribution.

“While Amazon does pitch account managers to sellers, they charge a monthly retainer for the service. Seller Central has become favored by some vendors because sellers are able to set their own prices, avoiding pricing wars and undercutting, but Amazon has recently begun rolling out measures to exercise control over seller prices. For example, it’s begun to set a maximum retail price for every product.”
KC's View:
There doesn’t seem to be much debate about the likelihood that this is going to make life tough for many of Amazon’s vendors, who are doing a lot of business on its site and now find themselves in financially tenuous territory. It certainly sounds to me like Amazon is flexing its muscle … the question is whether it is doing so because it can, or because, for some reason, it has to.

Actually, there are more important questions: How will this impact Amazon’s customers? Will it make products harder to get in a timely fashion? Will it result in more out-of-stocks? Will Amazon’s long tail get a little bit shorter?

I’m not sure how cognizant most shoppers are about where the products they buy on Amazon are coming from, but they will notice if Amazon’s value proposition narrows at all.