With the recent acquisition of Whole Foods, the behemoth of e-commerce that is Amazon continues to grow like kudzu, leaving everyone from mom-and-pop retailers to federal regulators scrambling to understand the implications of its rise. A recent analysis found that 43% of all online retail sales in the US went through Amazon in 2016. Even more shocking: no fewer than 64% of households in the U.S. are Amazon Prime members.
Amazon affects just about every industry imaginable. Those that it’s not disrupting, it’s downright redefining. Chief among these industries, of course, is shipping. With free two-day shipping now the norm for those 64% of American households, every e-commerce company is faced with an important question: to Amazon or not to Amazon? The companies for which this question is the toughest, though, are distributors.
For Amazon, Distributors are Often a Means to an End
One of our valued clients is an auto parts company specializing in very unique parts for older model Volkswagens. As a distributor, they offer their customers access to niche products that are difficult to find. When this company decided to make their inventory available through Amazon, they were required, per Amazon’s policies, to provide all the specifications for each product they were offering, including the manufacturer.
To the astonishment of our client, Amazon took this information and went straight to the manufacturer to set up a deal that would have cut our client out of the equation entirely. Fortunately, the manufacturer declined, but if the deal had gone through, our client, a local company, would have effectively been forced to close up shop.
Another client of ours, a candy distributor, was subjected to the same duplicitous treatment by Amazon. Our client had decided to sell on Amazon, but after learning the manufacturer of the candy, Amazon decided that our client was no longer necessary. They went straight to the manufacturer and set up a deal to sell the same candy direct to consumers, pricing out our client entirely. Because of the direct competition from Amazon, our client was forced to close their doors.
In addition to shady dealings like these, Amazon has also been known to undercut its sellers by tracking third-party sales on the site and then using that data to offer the most popular products in direct competition with members of its marketplace.
For Some Brands, Amazon Isn’t Worth It
Some brands have decided that working with Amazon simply isn’t worth the downside. After seeing a rash of counterfeits and unauthorized selling on the site, Birkenstock, for one, opted out of its relationship with Amazon as of January 1, 2017. The brand also refuses to authorize third-party merchants to sell on its behalf. According to a memo from CEO David Kahan:
“The Amazon marketplace, which operates as an ‘open market,’ creates an environment where we experience unacceptable business practices which we believe jeopardize our brand. Policing this activity internally and in partnership with Amazon.com has proven impossible.”
Central to Kahan’s complaint is the fact that, for e-commerce companies, selling and shipping with Amazon implicitly entails diminished control over how customers experience their brand. Offering your product on such a large and unwieldy platform reduces your brand to just another commodity alongside thousands of others. Birkenstock—and a growing list of other brands—would rather retain full control of their supply chain to better shape their brand experience from start to finish.
Should You Sell and Ship With Amazon?
Amazon is nothing if not a double-edged sword. The decision as to if and how you wield that sword is a tricky one. On the one hand, the world’s third largest retailer can certainly offer your brand incomparable exposure. But at what cost?
If you’re considering entering the Amazon marketplace, it’s best to patiently weigh the pros and cons and decide whether the risk is worth the reward. You should evaluate whether or not you stand to realize a true net benefit over a long-term period (5 to 10 years). The fact is, once you start selling through Amazon, you’re essentially stuck. Customers are no longer going to shop for your products at your website when they can conveniently find them at Amazon alongside their other favorite brands.
One approach is to be very strategic as to which products you decide to sell on Amazon. By only selling certain SKUs, you can retain control over the majority of your products, as well as your brand experience. Limiting the availability of your top-sellers or highest margin products to your own website is often a good strategy.
The best approach is to speak with a shipping industry expert, who will analyze your needs and offer an array of effective strategies for working with Amazon. Only by taking into account the various products you offer, your margins and shipping costs, the percentage you would be paying to Amazon, and the long-term goals you have for your brand, can you truly understand if selling and shipping with Amazon is the right move for your company.
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