As we embark into the new year, Kaspien has put together 6 predictions for what 2020 will bring to Amazon. Some of our predictions were recently featured in Business Insider, “The top 7 issues for Amazon Marketplace Merchants in 2020.” Here are the rest of our predictions for what the new year has in store for Amazon merchants.
Amazon will take some drastic steps to fight counterfeit products and fake reviews on the platform. With Nike leaving the platform, more brands will follow suit (see #3 below), which will present significant risk to their retail/platform business. Amazon will not want that to happen and will do whatever it takes to make sure large brands get the best service on the platform.
As Amazon’s advertising revenue continues to grow, Amazon is likely to continue investing in enhancing and expanding its on-platform services. In recent months, Amazon has introduced three new features for Sponsored Product and Sponsored Brand Ads, including Search Term Insights, History, and Video Ads. We predict that Amazon will also launch its own full-service marketing / advertising agency to help brands grow their businesses on Amazon. This will also extend to other services. Amazon will setup a portfolio of services to help brands run their businesses on Amazon, e.g. inventory management, tax preparation, etc.
As more third-party logistics providers (3PLs) support 1-day and 2-day shipping, and as brands continue to build their online/omni channel brand presence, brands selling on their own will be a much more profitable venture. More importantly, a customer buying a brand from Amazon is an Amazon customer, not a brand’s customer. Brands looking to increase the lifetime value of their online customers will want to own that relationship with the customer and will move from a transactional relationship with their customers on Amazon to owning the customer through their own distribution channels.
Amazon will continue expanding 1-day shipping in its obsession with consumer convenience, but at the expense of sellers. One-day shipping drove down Amazon’s profits and going forward, Amazon will transfer this cost to sellers as another program to opt into, or through increased fulfillment fees. These increases will put more pressure on margins for sellers on the Amazon platform.
With the 2018 Farm Bill legalizing the sale of CBD products, it’s likely that Amazon will also allow the selling of CBD products on the platform. While this would open a lucrative market for CBD retailers, all states must first legalize CBD and the FDA must change the classification before Amazon will lift current restrictions. Given the demand, this is likely to happen sooner rather than later.
With the consistent focus on free cash flows and profitability, we predict that Amazon will continue to rationalize its vendors into 3P. The bar to become a 1P seller on Amazon will only increase in 2020 and only the largest of brands will be handheld on the platform through a more traditional retail model. Selling on Amazon will be automated for 80% of its vendor base.
In late 2018, Amazon was reportedly working to merge Vendor Central and Seller Central, with the possibility of forcing smaller brands out of a 1P relationship into direct selling or 3P business models in the process. This fear was seemingly confirmed in March 2019 when Amazon unexpectedly stopped placing purchase orders with thousands of vendors. Amazon redacted the move a week later, with the caveat that brands would have to enroll in Brand Registry over the next 60 days. The fear was stoked once more in May 2019, when Bloomberg reported that anonymous Amazon insiders said One Vendor was still being developed. Since then, news about One Vendor has been silent.
Despite its leviathan size, Amazon is still able to pivot quickly. As Amazon faces increased federal scrutiny, bickers with Microsoft over the JEDI contract, and prepares to expand operations in India and the Netherlands, if there’s one thing we’re confident of, it’s that 2020 won’t be a dull year for the world’s largest online retailer.