Amazon is now pushing wholesale vendors to sell directly - cutting the middle man in the process.
More than half of the sales made on Amazon are by third-party merchants. With that in mind, the company is looking to expand its coverage.
By cutting back on orders from many wholesale vendors Amazon is pushing them to sell their inventory directly on Amazon. This will not only reduce overhead, in addition, but it can also help open more space in their warehouses and fulfillment centers. Making sure Amazon is able to push a more profitable movement.
The Value Of Amazon:
It's no secret that Amazon has built its business by revolving around scale, and is now in the perfect place to cash in.
For years Amazon built its business by offering a broad selection at low prices, keeping their profits to a minimum; making sure its marketplace was growing. As it's share of online sales grow, eMarketer has already predicted that Amazon will take home more than half of all online sales in the U.S.
In their years of grown Amazon built a wide network and a loyal customer base. Both being a critical aspect of any growing e-retailer.
Evercore ISI, an analyst at Indeed listed Amazon’s third-party marketplace has doubled the value of their personal retail business. Keeping away from the fact that Amazon’s third-party merchants generate approximately one-third of their revenue.
Meaning the third-party seller services are significantly higher than Amazon would like. As the company takes a percentage on each sale made on their marketplace, if the seller uses a service such as Fulfilled by Amazon - Amazon stores and ships their items, taking another fee. While the cost of these services is comparatively low, but it's a massive retail business in itself.
Removing Additional Costs:
Amazon bears a great deal of cost and risk by offering direct retail. It has to list the products and fulfill the orders while offering free service in exchange for wholesale pricing.
This requires more cash on Amazon’s part and pushes their overhead expenses beyond a certain level. While Amazon personnel work directly with vendors, while third-party sellers use Amazon’s automated system.
Bottom line is if vendors would become in charge of fulfilling their own orders, or start paying Amazon to do it; it would take a great deal of load off Amazon. Allowing them to expand their fulfillment capacity, while increasing fulfillment services.
Finally, it will free up room in Amazon warehouses, and allow them to take on private label products. Offering them higher profit margins, and opening new doors and opportunities for them.
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