As Amazon continue to cut ties with European distributors, we examine what the change means for brands, distributors and consumers
Article main contributor: Gemma Stainsbury, Account Director @ Melody Agency.
The 1-minute summary read
What’s the situation?
After a period of sharp economic growth that saw Amazon invest heavily in infrastructure and innovation, slowing sales and a gloomy economic climate left the e-commerce giant with spiralling, unsustainable costs.
As rivals such as Walmart, Target, Wayfair and Overstock pile on the pressure, Amazon has been exploring different ways to reduce costs and boost margins.
It has resulted in Amazon announcing it is to stop working with many European distributors who supply goods on its site.
Instead it will deal directly with brand manufacturers – cutting out the ‘middlemen’ to streamline its supply chain and costs.
Amazon’s decision to cut out the middle-men and work directly with brand owners will have drastic implications for the whole supply chain.”
Matthew Howes, Ecommerce Director
It’s a monumental shift change, and one that is likely to have a significant impact on the European retail market and potentially the future of ecommerce itself. Seen as a win-win for Amazon and brands, it’s the network of distributors who are likely going to bear the brunt of the change.
Distributors currently play a hugely important role in Amazon’s supply chain. Arguably, their absence could lead to lower prices for consumers – as Amazon gains a stronger influence over pricing.
But some analysts are concerned it could also limit consumer choice, as smaller brands find it increasingly difficult to get their products listed on Amazon.
It’s a change in the global landscape with US retailers such as Walmart and Target already investing in their own distribution networks in an effort to reduce their reliance on third-party suppliers.
As competition increases, and more retailers look for ways to cut costs and improve their margins, it’s a trend that looks certain to continue well into the future.
A 15 – 20-minute read on the bigger picture
Understand the broader implications for your company from Amazon’s latest policy change.
In a statement that will have come as a shock to many of its European Vendors, Amazon has announced a change in procurement policy that will see it focus on sourcing products directly from brands instead of wholesalers in the future.
The change, implemented at a European level in April 2023, has already affected some 14,000+ distributors, with thousands more bracing themselves for the impact it will have on their business.
Amazon has assured wholesalers that they will still be able to sell their products through the marketplace – but only if they are the brand owner or have sole distribution rights.
Any eligible wholesalers who want to continue selling on the platform must create an account on Amazon’s Seller Central to become a partner seller.
What does all of this mean for manufacturers?
Amazon’s change in direction could cause problems for manufacturers who use multiple distributors (especially where they do not know who is supplying Amazon) to supply products to Amazon, and rely on them to reach the European market.
It’s difficult to judge the impact on manufacturers, but some could potentially lose up to 50% of their sales.”
Stef van Boekel, European Operations Director
One by one, these distributors will find themselves cut off from the Amazon Vendor program, leaving manufacturers with only a small number of exclusive distributors to work with. New relationships have to be formed and new terms agreed. It’s time consuming, costly and a hassle – and will almost certainly cause delays and disruption.
Of course the change could also mean that manufacturers suddenly become responsible for their own Amazon product pages – everything from customer-facing product imagery and videos, bullet point product copy and descriptions, all the way through to the supporting advertising needed to promote those pages.
For some, it will be the first time they’ve ever had to think about creating best-practice design and copywriting let alone the complexities of Amazon product page and brand store designs. And not to forget the importance of an Amazon-specific pricing strategy.
It’s crucial that you move swiftly if you want to navigate the Vendor change programme, to survive and thrive on Amazon.”
Matthew Howes, Ecommerce Director
The key factor in all of this is speed. If a distributor decides to join Seller Central, it needs to happen sooner rather than later. The faster they can start building a sales history directly with customers, the less impact losing the vendor-ship will have.
If manufacturers do decide to manage their own products, they’ll need to open up a Vendor account and start building a sales history before the cut-off date.
They’ve got less than a year and although it may seem like a mammoth task, it is possible. And there are great opportunities for the brands that make the leap.
They will be free to take control of their listings, optimisation and branding. And by cutting out the middleman, they’ll have greater control over pricing and product availability – which could lead to higher margins and higher profits. They’ll also have direct access to consumers, with a clear line of communication that could lead to better customer service, closer relationships with customers, and increased brand loyalty.
What does all of this mean for distributors?
It’s a worrying time for distributors who will have been used to seeing a regular flow of purchase orders through Amazon. Many businesses will have come to rely on that revenue stream. So for it to suddenly dry up will leave a sizeable hole in turnover.
Amazon’s network is also likely to pose challenges – particularly for smaller distributors – as the size and scale of their infrastructure such as warehouses and fulfilment centres gives them a significant advantage. It will become increasingly difficult for distributors to compete.
Despite these challenges, there are still some options open to distributors. For example, manufacturers may still decide to use distributors who are already set up as a third-party seller on Seller Central – allowing them to sell directly to customers.
Amazon makes more money this way, so could this be paving the way for a more radical change that sees Amazon phasing out vendor sales altogether as the platform becomes a marketplace only? Time will tell.
As with manufacturers, time is critical for distributors. If they are going to open a Seller account, they need to do so as quickly as possible.
Amazon has stated that they will cease sourcing from distributors as of 15th January 2024.
But it’s feared the impact will be felt long before that as Amazon picks up the pace as the date draws closer. So with just a few months to go, setting up a Seller account now will help ensure a smoother transition so distributors can continue operating with fewer delays or setbacks.
Another option open to distributors is to focus on providing more specialised services, such as marketing and customer service.
They could also partner with Amazon to offer their products on the Amazon platform. Or, if distributors have products of their own to sell, they would be recognised as a vendor, allowing Amazon to continue working with them.
What does all of this mean for consumers?
Although the change won’t be anywhere near as significant for consumers, shoppers will almost certainly notice some differences.
On a positive note, it’s hoped that consumers will start to see lower prices. Amazon is after all, one of the world’s largest and most influential retailers, so has a degree of bargaining power with manufacturers to negotiate lower prices on products which will inspire a return of greater shopper numbers and sales.
And with huge infrastructure already in place, including a large network of warehouses and fulfilment centres, Amazon has the enviable ability to stock a huge variety of products, giving consumers a greater choice of what they can buy online. But it’s the choice of brands not products that have analysts concerned.
It’s feared that cutting ties with distributors will make it extremely hard for smaller, more niche brands to maintain a foothold on Amazon. Could this eventually make the marketplace stale – full of established names but no exciting challenger brands to mix things up?
Customer service or lack of it is also a concern – and certainly something to keep an eye on over the coming months. Amazon has a huge customer base which makes it almost impossible to provide a high level of service and care to everyone. As the retailer takes back more control, will this lead to a drop in the level of customer service?
Navigating the change
Whether you’re a distributor or brand, the upcoming change is likely to lead to disruption and upheaval. Understanding the challenges is key.
Part of Amazon’s Solution Provider Network and the Global partner network, Melody is a performance Amazon marketing agency with specialist marketplace expertise. We work with all parties – manufacturers/brands and distributors – so are in the enviable position of being able to advise each on how to best move forward.
We offer end-to-end support including consultancy, training, fulfilment and logistics (Amazon pan-EU), reporting, listings set up, optimisation, content creation, advertising and translations – all with a single point of contact. You can find out more about our full list of services and expertise here.
To help you meet the challenges, and stay one step ahead of the approaching deadline, we are offering Senior Vendor Account Directors bespoke 1-2-1 consultancy sessions. If you’d like you to request some time with our experienced team, please register your interest today.
