Amazon dictates manufacture wholesale terms
We recently had an interesting conversation with a UK Retail brand who manufactures their own products and wanted to sell on Amazon. They’ve been told by Amazon that they will not allow it, due to ‘a new policy’, which has existed for the 6 months.
The manufacturer were informed that all manufacturers must now sell into Amazon using their wholesale model, where Amazon buys chunks of stock at wholeseale prices, which Amazon then sells. Effectively Amazon are insisting that the manufacturer become a first-party seller and use Amazon Vendor Central rather than Amazon Seller Central.
These are the terms which Amazon have said that they must abide by:
- The manufacturer must use a wholesale model
- Amazon MAY decide to use a drop-ship model, whereby the manufacturer would also be expected to hold the stock and fulfil the order at whatever price Amazon dictate.
- Amazon MAY request that the manufacturer exercise a pre-existing clause in all their existing wholesaler contracts, where they are not allowed to resell into 3rd-party online spaces, like Amazon.
- Amazon will use it’s Never-knowingly-undersold pricing strategy, scraping the web, including the brand website, to ensure they at least equal the lowest online selling price for each product.
Have you come across this if you manufacture your own products? Personally I find it hard to believe that Amazon can personally stock (or drop ship) products for every manufacture no matter how small, but perhaps they’re happy to allow resellers to sell on their site but not to allow manufacturers to sell direct?
The clauses they’re insisting upon are also rather harsh. Barring existing retailers to sell the manufacturers products on marketplaces seems a step too far, even if they don’t want competition on Amazon how can it be acceptable that they ban sellers on eBay, Rakuten and other sites? Also by Amazon matching the lowest price on the web and doubtless negotiation hard (dictating?) the discount that Amazon wishes to buy the product at will make it hard for other retailers to retain decent margins on their own websites.
We’d be very interested if you’ve experienced Amazon’s manufacturer supplier contracts and how it’s affected your business and your wholesaler/resellers. All comments welcome.
Just as we see insurance products advertised ‘Not On Price Comparison Websites’.
We will soon see physical goods advertised ‘Not available from Amazon’
Way to go.
But pretty easy to get around. If you simply split the company into 2 or 3 separate companies.
But how about comments on sellers who have engaged in this programme and if its helped them or hindered them ? Maybe the volume make it worth it ?
I think amazon is worried about so many manufacturers now taking on the role of retail directly, as well. A good example would be say clarks (Been doing it for years. but now hard to find a pair outside their own channel), or Apple. Ok those 2 also have B&M stores. But they retail online directly. In the case of apple it purposefully holds back stock from other retail outlets so they can sell it themselves. Very typical for a new product. When the fanbois will pay anything and want it 2 seconds before the next man.
We’ve been selling direct to Vendor Central for about two years in addition to selling via the marketplace for three years prior to that. Negotiations consisted of Amazon telling us to offer them our ‘lowest cost price’ which was a little different to what we were expecting to say the least. The main issues with selling to VC are that you’ll have to agree to a marketing rebate of a certain % which they like to renegotiate on a regular basis. Returns are very common too and are mostly due to overstocking. Also be prepared for them to order literally 1 of each sku to about 5 different fulfillment centers at once which can make shipping costs prohibitive. You may offer them wholesale prices but be warned they do not necessarily buy in bulk unless the items are popular. The main advantage is that you do get more page views on your skus which in theory leads to more sales! Is it worth it? – even after two years the jury is still out for us.
Thanks for the explanation, it was very informative. But it sounds like a really expensive way of selling an item.
For example for a start sending 1 of each item to 5 fulfilment centres. Then all the labelling specially bagging and bar coding seems also more cost. Then i suppose they charge you for returns so if an item has a fault, you pay to return to amazon and then pay again for it to come back to you.
It all adds to cost, not to mention they are demanding the lowest of low prices as a start point.
If they cant offer A LOT of volume, I cant see where the margin would come from.
Sounds like the economic equivalent of fascism.
Surely at least one of these Amazon demands is breaking European competition law!
It is only a matter of time before amazon/ebay get caught doing something that is naughty. Mind you at least paypal will be shielded from the aftershock.
I am honestly surprised there has not been any whistle blowers coming out of the woodwork.
They’re not worried about competition law. It takes so long to get a decision that they can do considerable damage to the competition while the authorities are busy pondering all their weasily worded submissions supported by deliberate misinformation through their own and others media.
I’m not sure I fully understand this. Some of the goods I sell on “Amazon Seller Central” I manufacture myself. Amazon know this (and, indeed, contacted me to advise that I consider branding). No objections from them. If they insisted that I only go through “Amazon Vendor Central” I would have to stop selling my manufactured items on their site. The arrangement that is described above certainly wouldn’t be worth my while.
With eBay getting less and less attractive to sell on – I would be concerned if Amazon went the same way.
“Amazon MAY request that the manufacturer exercise a pre-existing clause in all their existing wholesaler contracts, where they are not allowed to resell into 3rd-party online spaces, like Amazon. ”
thats a low blow – if anything amazon should be pro-actively working against these kind of clauses, not supporting them.
Amazon are in business to make money, and if you buy it elsewhere they aren’t making anything. And it’s to their advantage people know that the cheapest or only place you can get a particular item is on Amazon.
no the point of this is to eliminate competition. if amazon have to compete with a third party seller on amazon, then they have to price accordingly. dig up a rule that stops third parties listing on amazon, and you can charge whatever you feel like.
Exactly. Just like they did with books (Amazon prices were cheap, they’re far from it now), though they still play both high and low price by using their bookdepository subsidiary to tackle low priced competition.
Another reason why you’ll never see my own manufactured products on Amazon. I suspect I’m not the only small manufacturer who feels the same way either. It sounds more like an abusive marriage than a business relationship.
If you are a small manufacturer who does not have a “wholesale model” it may not be applicable.