Amazon is a seemingly unstoppable ecommerce force. And based on our recent findings, it will be the place where some 30% of shoppers begin their search for Christmas gifts their year. So Amazon can be a solid sales channel for many online retailers.
But becoming over reliant on Amazon as a channel can be risky business. We spoke to Tracey Drain, EMEA Ecommerce Marketing Manager for Spectrum Brands about the potential dancers of having too much reliance on Amazon. Here's her take:
"Remember the days when businesses used to rely purely on organic traffic from Google? And then sites got a Google penalty after a major algorithm and lost all that traffic? Because of heavy reliance on one single traffic channel it's not uncommon for those businesses to go under. It’s not that dissimilar to that."
It's a valid (and potentially terrifying) point. If all your sales are generated through Amazon and you have a disagreement with Amazon or find listings suspended, then you could lose literally all of your revenue overnight with no cushion or notice period.
The risks can be different depending on what sort of relationship you have with Amazon. Tracey explains:
"There are two main ways of selling on Amazon. Firstly, as a 1P Vendor - selling TO Amazon in a supplier retailer relationship. Alternatively, you can sell as a 3P Marketplace seller where you're selling on Amazon but you’re the merchant and Amazon is just the facilitator of a sale – essentially using Amazon as an ecommere platform, if you will."
There are different risks associated with each method of selling on the platform.
The Risks for Amazon Vendors
Some vendors have had a hard time of it recently with changes from Amazon and a halt in orders from smaller vendors. Tracey tells us,
"Amazon recently stopped placing purchase orders with smaller Vendors and have been emailing them to say that Amazon thinks they'd be better suited to marketplace (3P) selling. This has been coined The Vendor Purge and looks to be affecting Vendors doing under $10m USD. Amazon denied it and backtracked. They first did this in March 2019 and then again in May 2019. All the signs are there that it’s happening."
In other words, Vendors who rely solely or largely on Amazon for revenue generation and aren't generating enough to meet Amazon's thresholds may find themselves short of significant orders. In many ways, it can be likened to having just one customer. When they stop buying, revenue stops coming in.
The Risks for Amazon Marketplace Sellers
Amazon is under scrutiny by the EU antitrust investigation – as a direct result of the reliance that 3P sellers have on its platform.
Tracey highlights what impact this actually has on marketplace sellers:
"Amazon is known to use the sales data from marketplace sales to go out and source what it algorithmically deems as profitable products – to either source directly for Amazon Retail (1P Vendor) or to recreate its own copycat product in the form of Amazon Basics or Amazon Essentials.
There are many horror stories from Sellers about the increasing cost of support that used to be available as standard (see this one about a hacked seller account). There are also many examples of Amazon prioritising its own product range (Basics and Essentials) in the search results – and even one real shocker where a click on a sponsored ad (brand had paid to be top for “AAA batteries”) was disrupted by Amazon shoehorning their own product into the buy box! SEE IT IN ACTION HERE.
The ease at which product listings can be removed or a marketplace account suspended is quite alarming. There are so many metrics such as customer complaints, late deliveries, seller ratings, FBA non-compliance, trademark infringement, damaged deliveries and so on, that can get your whole account suspended from Amazon. And just to be clear, an account suspension takes down every product and every brand you’re selling. The guy in this story describes it as a death knell to his business. You have to write a ‘business plan’ to explain to Amazon what steps you’ve put in place and what changes you’re making within your business to make sure it doesn’t happen again. An Amazon version of a “resubmission request”, if you will. Only it can take longer and all the while, if Amazon is your primary sales channel, you have nowhere else to divert that traffic and no means of making the sales that are crucial to your business."
A Wider, More Rounded Approach
Having complete reliance on any single channel is a high risk strategy for any business. And although we can't escape the value that Amazon offers marketplace sellers and vendors alike, a reliance on this third party to generate customers for your business can leave your burnt.
Creating your own assets (your own site which generates traffic and sales directly through various marketing activities) gives you much more control.
Are we saying don't invest into Amazon? Absolutely not. It's the biggest product search engine around and your customers are shopping there. But don't make it the be all and end all for your retail business because, as Tracey sums up perfectly,
"Amazon will always do what is right for Amazon. It does not care about your business."
