As discussed in our last blog post, Amazon temporarily removed thousands of vendors from Vendor Central and notified some high-revenue sellers that it would be closing their Seller Central accounts, forcing their Amazon business into an exclusive relationship with Amazon Retail. The following week, Amazon walked back this decision, emailing brands that automatic PO’s will resume, so long as they are enrolled in Amazon’s Brand Registry. Non-brand owners are still directed to create Seller Central accounts.
These changes may foreshadow Amazon’s implementation of the One Vendor system, which would merge Vendor Central and Seller Central into a single system.
While Amazon has backtracked since the initial March 4th scare, the surprise has left many companies weighing their next steps and planning how they can avoid a detrimental impact to their business when Amazon finally does commit to a one-system platform.
To make your decision, you should understand each of your options. In this post, we’ll examine the main differences between the three ways brands can sell on Amazon. For brands who still have the ability to choose their preferred Amazon business model, we’ll cover points of consideration and next steps for all three options.
BUSINESS MODELS FOR SELLING ON AMAZON
|Sell to Amazon Retail (1P)||Sell from Your Own Account||Sell to a Third-Party Retailer (3P)|
|Platform||Vendor Central||Seller Central||Seller Central|
|Operations||Amazon provides the infrastructure||You or an agency provides the manpower, expertise, and infrastructure||Your 3P retailer provides the manpower, expertise, and infrastructure|
|Marketing||Tools provided in Vendor Central but managed by you (you pay).|
Limited to Vendor Central platform for marketing optimization
|Managed by you or an agency (you pay).|
Progressive agencies develop their own marketing technology or outsource to another platform to scale and improve marketing more effectively than is possible in SC or VC
|Managed by your 3P retailer (you pay).|
Progressive 3Ps develop their own marketing technology or outsource to another platform to scale and improve marketing more effectively than is possible in SC or VC
|Data Reports||Vendor Central often charges extra fees for viewing data reports||Seller Central provides many data reports for free||Seller Central provides many data reports for free|
|Inventory Fulfillment||Managed by Amazon||Managed by you or an agency||Managed by your 3P retailer|
|Costs||21%-48% in fees||Pay for everything yourself or pay an agency a fee||None. Your 3P retailer will purchase inventory wholesale and resell it|
|Cashflow / Income||Amazon places PO’s||Sales revenue||3P retailer places consistent PO’s|
|Tax Considerations||Amazon collects sales tax in applicable states||You or an agency is responsible for collecting sales tax in applicable states||Your 3P retailer is responsible for collecting sales tax in applicable states|
|Future Stability||Amazon seems to be reducing the vendor model||Amazon seems to be pushing towards a seller model||Amazon seems to be pushing towards a seller model|
Amazon has notified some larger brands (annual Amazon sales exceeds $10 million) that they will no longer be able to sell on Amazon from their own account or through a third-party seller. If they want to continue selling on Amazon, they must sell exclusively to Amazon Retail.
If you were temporarily removed from Vendor Central (or wish to act preemptively in case Amazon makes permanent cuts), you may be considering selling directly from your own account.
A solution to these challenges: Amazon Agency
If you love the advantages of selling from your own account but currently lack the infrastructure or resources to manage it in-house, you still have options. You can hire an Amazon agency to manage your Amazon channel from within your brand’s account.
With a channel management agency, you retain maximum brand control and marketing flexibility, while they provide the team, expertise, and technology to grow your channel.
If you are leaving Vendor Central, transitioning to a 3P partnership is likely to be the easiest transition. When you sell to a 3P retailer, your relationship will function in many ways like your relationship with Amazon Retail. Your 3P retailer will buy your product wholesale, then resell it on Amazon. They provide the manpower, expertise, and technology to drive sales.
Amazon may be dictating some of your business decisions moving forward, but you still have options. Weigh the above considerations and determine which of the three business models is best suited for your long-term business goals.
If you want to work with a third-party retailer or an Amazon agency, Kaspien can help.
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