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Platforms giveth, and platforms taketh away. Brands are learning that lesson with Amazon — and it’s not pretty.
On Monday, the company stopped replenishing purchase orders for tens of thousands of vendors, with no notice or warning and an ensuing barrage of miscommunication, with conflicting messages being sent out to vendors. The move affected brands doing up to $10 million a year in business on the platform, and seems to be part of Amazon’s shift to exert more control over how and where sellers do business on the platform.
Amazon’s not known to play nice with brands, touting and living up to its stringent “customer first” ethos. But agency executives working with Amazon sellers were aghast. “This is a lack of communication that’s a step too far,” said one executive who spoke on background. “It’s unconscionable,” said Kiri Masters, the founder of Bobsled Marketing.
“What kind of trillion dollar company can’t give small businesses like me a 14 or 30 day heads up, just to say, ‘This is not profitable for us, go to Seller Central because that’s going to work better’?” said the owner of a small brand doing about $5 million a year on Amazon. He added that his company actually had been selling third-party on Seller Central for about nine months when, in October, an Amazon vendor manager reached out to convince his company to set up a Vendor Central Direct Fulfillment business. The owner said he had just finished placing purchase orders based on 2019 projections from Amazon when his orders were canceled without warning. “It’s absolutely unbelievable.”
“There’s a hint of cyberbullying to their methods,” said another vendor.
Some execs at agencies working with Amazon sellers believe shifting vendors to Seller Central was intended, but happened prematurely. One executive said that a source at Amazon previously said that Amazon wanted to avoid a disruptive event, instead transitioning vendors over the course of a year to 18 months.
“Amazon’s systems have to work at scale, so whenever changes are introduced it’s often difficult to get the entire system aligned with the desired change,” Larry Pluimer, the CEO of the agency Indigitous who previously worked at Amazon. “I’m still inclined to believe that mistakes were made.”
There are hints that Amazon is actually walking back the decision, which John Ghiorso at Orca Pacific suggested could happen if there was enough backlash. His agency has heard from some brand clients Thursday that Amazon reinstated their purchase orders, but with no reason as to why.
Either way, Amazon has strained the relationship with vendors, if not burned the bridge altogether. Most small brands aren’t in a position to pull business out of Amazon entirely, but the owner of the small business said that he would be focusing on marketing his brand to build sales up elsewhere, and “take some of the eggs out of the Amazon basket.”
“I can tell you, though, that I don’t intend to purchase anything from Amazon ever again,” he added. — Hilary Milnes
Agencies specializing in Amazon have found a new business opportunity. As news broke this week on Digiday that Amazon appears to have been making the first move towards a unified selling system, dubbed “One Vendor” in the press — and has cut off tens of thousands of vendors in the process, vendors have begun crawling out of the woodwork.
Their pitch: As Amazon tightens up who gets to sell and how on its own platform, it’ll help brands transition to the third-party sales platform (seller central) and away from first-party. That’s because this new move may force many brands to go third-party, which comes with its own headaches, including a “sales tax” first-party sellers don’t have to pay. Selling third-party is quite different from selling directly, and agencies are out there pitching their wares to anyone who will listen. On vendor forums, common on LinkedIn and Facebook, every complaint from a vendor resulted in a rep from an AMS focused agency or an “e-commerce expert” with some variation on the following: “I can help.”
Every crisis has its silver lining, after all. — Shareen Pathak
Kroger’s “core” gets called out
It’s not easy rebuilding your business for the Amazon age. On Thursday, Kroger reported its 2018 financial earnings, which missed the mark, causing shares to plunge and wiping out about $2.8 billion in market value. Total sales for the quarter decreased 9.5 percent, to $28 billion, while total sales for the year fell 1.2 percent, to $121 billion in 2018, compared to $122.7 billion in 2017.
Kroger’s side businesses in media and finance may have done better, but on the call, it was the core that was called out. “I know you try to encourage us not to look at your business in terms of the core, but it’s hard not to look at it that way. When I try to look at what your core business actually did, the decline was pretty significant — I’m getting nearly 30 percent decline for the core,” said Karen Short, managing partner at Barclays, who is referring to Kroger’s core grocery business — not including fuel, marketing revenue or financial services. “We’re trying to think of you in the way you’re thinking of you, meaning a growth company, but you need stability in your core to have the credit in your valuation for being a growth company.”
Kroger is essentially footing the bill and suffering the losses while it invests in building a new version of the business, one that has multiple profit streams that lead to what McMullen calls a “virtuous cycle” of growth. Investors have to be patient, essentially, while Kroger waits for the pieces to come together. But while a company like Amazon may get a pass for not turning a profit as it builds a new retail ecosystem, Kroger is under greater scrutiny to perform even as it reorganizes. If it can’t pull it off, it doesn’t bode well for the rest of the non-Amazon and Walmart grocery industry. — Hilary Milnes
3 questions with Rent the Runway COO Maureen Sullivan on expanding the rental platform
Rent the Runway and West Elm are partnering to rent bundles of decor for the living room and bedroom to Rent the Runway subscribers and customers. It’s the rental company’s first step outside of clothing and accessories, and Rent the Runway is heading to SXSW for the first time this weekend with West Elm to discuss the potential of renting more than just fashion.
Rent the Runway’s chief operating officer Maureen Sullivan answered questions about the platform expansion.
A lot of brands, including American Eagle and Ann Taylor, are trying out subscription rentals on their own. Why did West Elm decide to partner up?
There was a number of Rent the Runway subscribers in West Elm’s corporate office, and they were noticing their behavior around renting — that was the catalyst. From their mindset, they understand that from our subscribers, they want assortment. That’s exciting to West Elm. Rather than them trying to drive engagement to one category, we have this loyalty and behavior habituated in our subscribers. We want to turn on our rental revenue stream, and we have demand already. The customer wants choice, and assortment and scale of brands will be an important part of our value proposition: What more can we add to make her life easier that fits into the ethos of having an unlimited closet?
What does West Elm and Rent the Runway want to learn from this?
We’re looking for how long she keeps this product. We know how long people hold onto apparel — it all depends on psychographics. That’s going to be important to learn. We’re interested to see how people respond to the curation, too, and how much people just buy the bundle because the value add was us putting together a selection for them. That will be an interesting insight to find out. And then as always, the product itself — what pieces are driving the outsized demand, what’s not moving, what’s getting sent back vs. bought.
Internally, did this partnership work differently than Rent the Runway’s typical brand partnerships?
West Elm has cross-functional teams across merchandising, operations, product and technology, and then a team on on our side as well coming together to work on this, and that made it really great. With our 600 brand partnerships, primarily it’s the Rent the Runway fashion team that interacts with the brands but this has required more functions. It’s an innovative new partnership, so it was super cross-functional, and that will contribute to the scale of the partnership. That will be a trend — that we’ll explore more innovative partnerships. Given the complexity of what we do, it takes a cross-functional team to make these things come to life. People are realizing that our subscribers are a community of millennials, working women who are an incredible customer and we’re lucky to have her. — Hilary Milnes
Don’t call it the retail apocalypse
Major retailers continue to close store locations. Instead of the death knell of physical retail, it’s an effort to readjust and appeal to e-commerce-friendly consumers who expect a better in-store experience. Here’s a tally of closures announced within the last two weeks.
- Charlotte Russe is closing all of its 416 stores: Another mall brand bites the dust. The fast fashion brand is liquidating, and stores will be closed by the end of April.
- Family Dollar is nixing 390 stores: Parent company Dollar Tree is rebranding some of the locations as Dollar Tree stores, while redesigning 1,000 more locations. It’s an effort to drive profitability for the struggling brand it acquired four years ago.
- Gap is shedding 230 store locations: Closing the stores helps it spin off Gap and Old Navy into two separate companies, cater to online sales, which it expects will eventually form 40 percent of its business.
- Victoria’s Secret to cut 53 stores: Parent company L Brands said: “Everything is on the table” for the struggling brand as it retires underperforming locations.
- JC Penney to close 27 stores: The retailer is getting rid of locations that were “minimally cashflow positive” or represent real-estate monetization opportunities.
- Amazon will get rid of 87 popups: In an effort to consolidate its physical store strategy among Whole Foods, a yet-to-be-named physical retail stores chain, cashierless Go stores, 4-star stores and Amazon Books, Amazon is refocusing its physical store approach — with plans to grow Amazon Books and 4-star locations. With a large physical retail portfolio, Amazon can apply the lessons from the popups to its other physical store locations.
- Tesla to close hundreds of stores: Tesla, on Monday announced it was closing most of its stores in favor of an online-only offering. Based on Tesla’s statement, it appears cost-cutting was the motive. “Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower all vehicle prices by about 6% on average,” a company blog post said.
— Suman Bhattacharyya
What we’ve covered
More on Family Dollar: A closer look at why Family Dollar isn’t thriving in a defensible retail category.
Slowing the tech roll: Cashless stores come up unethical implications, and cities and states are outlawing them.
Buy from BuzzFeed: The media company, to drive more revenue, is bringing more brands into its commerce business.