Amazon is reorienting its retail strategy, and sellers are starting to feel the effects.
The shift usually goes like this: a strategy is working on Amazon, until suddenly, it’s not. One furniture brand had a two-pronged strategy that combined a wholesale business with Vendor Central, and used drop-shipping to get the bulky items to customers as fast as possible. At the same time, the brand operated a “backup” business on Seller Central, Amazon’s third-party marketplace, where it could more closely monitor customer data, learn more about how products perform, have more flexibility in what products get listed and pad out margins for selling on Amazon.
It worked for the brand, until a week ago, when Amazon began suspending the Vendor Central listings for products that were also appearing on Seller Central.
The hybrid selling model on Amazon has gained traction as sellers realized they could control their own destinies better on the platform if they strike a balance between third-party and wholesale selling models. For a while, this worked for Amazon, too. Its retail business prioritized volume. Now, it’s prioritizing profit and efficiency, and multiple listings for one product aren’t conducive to its bottom line.
It’s one of the many shifts happening as Amazon rethinks its retail strategy. As its third-party marketplace outpaces its wholesale business, with $160 billion in sales in 2018 compared to $117 billion, Amazon is reallocating resources. Its first-party business is focusing in on big-name brands and Amazon’s exclusive and private-label brands, while the rest of its retail business is being funneled to the third-party marketplace, where Amazon is as hands-off as possible. To that effect, its added more seller tools over the past few months and pushed its Brand Registry program to help brands stamp out counterfeits. It all appears to be the lead up to a unified selling platform that would give Amazon full purview over seller strategy.
“When you start to consider what’s your pricing strategy, your fulfillment strategy, and you’re doing business in multiple places, that’s where it can become really complicated for sellers, Amazon and customers,” said John Ghiorso, the CEO of Orca Pacific. “Another reason Amazon is shutting this down is that they were redundant at a certain point. Sellers were running two different businesses, and for what reason?”
There are two lines of reasoning when Amazon makes decisions regarding who can sell where. If it’s a major brand whose business Amazon wants to control in Vendor Central, it will shut down the third-party marketplace listings, something it’s done to brands like Fossil. If it’s a seller that’s not turning a profit for Amazon to sell it wholesale, it will get punted to the third-party marketplace.
For sellers, an extra layer of scrutiny serves well when considering their Amazon businesses. It’s never been a set-it-and-forget-it business, and now they have to tread more carefully.
“It’s a clear reminder that Amazon is in control here, and always has been,” said the furniture brand exec.
Three retail veterans who have worked from one or more legacy retailers before joining a startup share their advice for others who are considering ditching their corporate jobs.
“I always tell people, ‘Don’t join a startup unless you’re 100% committed to the mission and the passion and you have the drive to do it on a daily basis.’ In the DTC world, there’s no finish line. There’s no companies that have reached maturity where you’d say ‘this company [has matured] and you can kind of coast from here on out.’ Every day is adrenaline-driven, and you have to be prepared for the toll that’s going to take on you.” — Nate Poulin, vice president of merchandising and planning at The Black Tux
“I’ve never worked harder in my life than I have at Stitch Fix. But knowing you’re part of this disruption or change has its payoffs as well. Don’t think of this next step as a cushy office [job] — it is really going to beat you down, in good ways because you’re just working so hard to move the needle and push things through. If that doesn’t sound good to you — like working really hard, and the work’s never-ending, it might not be for you.” — Cristina Angeli, former vp of brand and creative at Stitch Fix
“I think it’s important that you’re able to communicate that you’re an innovative thinker, as well as some of the things [in the business] that you see opportunity to improve. Because going to a younger company is all about getting to try new things to improve the business,” — Julie Bornstein, former chief operating officer at Stitch Fix
“The very nature of a new company is such that you’re creating everything from scratch — I’m choosing all of my vendors, which in some ways is scary, because if I make a mistake I only have myself to blame,” –– vp at a DTC brand
— Anna Hensel
3 questions with Leo Wang, the CEO of Buffy
Buffy, a comforter brand, is extending itself to the rest of the home. The company launched in 2017 with a single product — a comforter made with fill from recycled plastic bottles — and CEO Leo Wang sees the brand’s roadmap reaching to every home furniture product, which the brand can create using its sustainable manufacturing process. As DTC brands shift from product companies to category companies, Buffy, which hasn’t raised venture capital, is plotting its growth slowly but intentionally.
How do you consider and plan the growth trajectory for Buffy?
There are two types of DTC brands. One creates a lot of products within a category, like home, and tries to own that space by providing some version of any home product you might buy. Other startups go one product at a time. We fall into the latter. We don’t have the luxury of a blank VC check to launch all the products we want to at once, and put all this working capital into the supply chain. But we lean into that and benefit from that pressure, so we can test more rigorously. Our strategy team is comprised of managing consultants that works closely with the growth marketing team to assess the market size and new product concepts we put out there. We have a tool we use called Buffy Labs. It’s a group of engaged customers we have on speed dial to come in for a focus group or survey around product iterations. We’re launching our second comforter now, and that went through a dozen iterations.
What makes Buffy differentiated?
Getting it right in each product creates a revenue driver, cash booster and new opportunity. There are only 35 of us at Buffy, and we try to be focused at what we do. We haven’t tried to cut any corners for the brand platform that we’ve established, and we haven’t had to do because our first product was successful. That’s the plan for each one. We’re not dropping things day by day, but every time we do, we believe we baked it enough and it’s discernibly different and better and it will disrupt the category. It can’t be a land grab, which is what the startup VC model is. We believe with a strong brand, customers will buy more, but we need to be unit profitable on the first transaction so we can ensure that we have the ability to meet growth targets and have the financial leeway to keep growing.
What are your broader ambitions for the brand?
We want to be a complete bedding company first. Then next year we’re going to be breaking into several furniture items including a sofa, dining table, chair and area rug. We want to bring the same ethos of affordable sustainability with comfort and design to the entire home. What made the comforter successful was people loved the product as well as how it was made. That’s our blueprint for everything. We see CB2 and Ikea as who we’re targeting, but we’re going to do it in a way that’s not harmful to the environment. We see a huge opportunity to lead that shift. How we defined with the comforter that was based on customer interaction. We studied our return rates, we used Buffy Labs, all of that interfacing is really important, so we can do that with everything we make. — Hilary Milnes
By the numbers: Marijuana media spend
Kantar has compiled stats on the state of marijuana ad spend, finding that dollars spent are shooting up in cities where marijuana is legalized. Even as digital marketing remains out of reach for these companies thanks to restrictions, they’re finding places to spend.
- From 2017 to 2018, spend in Denver was up 150%, spend in Las Vegas was up 100% and spend in Los Angeles was up 600%.
- In Phoenix, spend went from $0 in 2017 to $100,000 in 2018.
- Most marijuana ads are for dispensaries and shops and most are billboards—outdoor advertising makes up 84% of total advertising, up 25% year-over-year, per Kantar.
- Spot TV and local magazines are up about 1,000%.
- Internet display and mobile web are up 200%.
- Newspaper ads for marijuana are down 50%.
What we’ve covered
Catch up on Amazon’s retail strategy shakeups:
- It’s shifting resources from private-label to exclusive brands.
- It’s axing purchase orders for vendors that aren’t profitable.
- It’s moving toward a unified retail platform.
Subscribe to the Digiday Retail Briefing: An email with news, quotes and stats covering the modernization of retail and e-commerce, delivered three times per week.