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Changes to Amazon’s pricing policy signal a shift in priorities

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It’s been a chaotic week for vendors and sellers doing business on Amazon. To catch you up:

  • Last Monday, tens of thousands of vendors found out their regularly scheduled purchase orders had been terminated, and that they could move their business to Amazon’s third-party marketplace instead.
  • Then Amazon walked that back. On Saturday, the majority of these vendors received an email from Amazon that their purchase orders would be reinstated, but that the vendors had 60 days to enroll in Amazon’s Brand Registry, which verifies brand trademarks and opens access to counterfeit protection. If a vendor was not the brand owner or an authorized seller, Amazon pushed them to open a Seller Central account in that 60-day period instead.
  • On Monday night, changes hit Seller Central. Axios reported that Amazon would stop prohibiting third-party sellers from selling products elsewhere at a lower price than they’re sold for on Amazon.

This pricing policy put limitations on sellers while ensuring Amazon’s marketplace always had the best, most competitive pricing for products online. It restricted not just pricing on other marketplaces like eBay, but also how sellers could operate their own direct e-commerce sites: A brand that also sold third-party on Amazon couldn’t run promotions for its own customers without also marking down prices for Amazon’s customers, too.

Essentially, it helped establish Amazon as the leading retail force in e-commerce.

“I don’t think you can overstate how big of a deal this is, because it’s the first time Amazon has made a change to its core set of partner agreements,” said Eric Heller, the evp of North American marketplace services for Wunderman Thompson Commerce and a former Amazon merchant manager. “It’s like taking off one of the 10 Commandments.”

In the wake of the decision, which Amazon confirmed has been enacted but declined to elaborate on, attention has been paid to Amazon acting to protect itself from an antitrust law violation, with its pricing parity called into question as a “most favored nation” policy, where all favor in online retail goes to Amazon thanks to price enforcement.

But according to agency execs who work with Amazon, it’s unlikely that the only motivation behind the move was break-em-up comments made by Elizabeth Warren on the campaign trail. The change in seller pricing policy comes during a time when Amazon is rethinking how and where all brands sell on its platform, in a push to increase profitability by pushing as many sellers as possible to the self-serve, hands-off third-party marketplace, and only buying inventory from brands that that are both profitable and worthwhile for Amazon to maintain a relationship with, like CPG corporations and trusted names like Apple.

In considering it as a step toward a unified selling platform, One Vendor, Amazon appears to be arranging its retail business around value and profitability, rather than competitive pricing. Value, for Amazon shoppers, has shifted more to emphasize product reviews, trusted brands and products, and speedy delivery, not necessarily rock-bottom pricing.

“Pricing is the number one thing brands come to talk to us about — either because they lost control of who’s selling their products on the marketplace, so they’re losing the buy box, or they can’t manage a profitable Amazon business with the pricing structure,” said Josh Owens, CEO of Amazon retail solution SupplyKick. “It’s a common problem and conversation. This is one of the first steps we’ve seen Amazon take to lessen that pressure.”

This is good news for brands. Without pressure to price match, more brands could be willing to put merchandise up for sale on Amazon, knowing that it won’t be continuously undercutting itself on price and that pricing strategy allows for more flexibility. It’s bad news for resellers on Amazon, though, who buy up products from other retailers for cheap and flip them on Amazon for a profit, competing only on pricing and in-stock availability.

“Amazon’s differentiator is not priced anymore, it’s value. People value their time and they also value quality,” said Heller. — Hilary Milnes

Added insight
“This is a big deal for brands/sellers who are not part of the Vendor/1P program. This price parity policy kept sellers from raising their price on Amazon.com, to compensate for Amazon’s commission and fees. In turn, this also kept customers from going off-Amazon to a seller/brand’s site to buy products cheaper, where the brand doesn’t have as much overhead. It essentially made Amazon the price leader by creating an artificial price ceiling outside of Amazon.com.

This seems like a small change, but it also kept a lot of brands off of Amazon due to margin or commission concerns due to Amazon’s fee structure (on average a 15 percent commission plus FBA fees is not insignificant). In turn this helped Amazon build more market share since most times there was no good reason for an Amazon customer to go outside of Amazon’s ecosystem.”
— Kevin Packler, Tombras Group on Amazon price parity

Dick’s Sporting Goods focuses on building out fulfillment
In contrast to other large retailers like Target and Walmart, which are fulfilling online orders in stores, Dick’s is investing in its own fulfillment centers, which it says will offer greater cost efficiencies.

“It’s a big opportunity to continue improving the online experience through faster and more reliable delivery,” said president Lauren Hobart, on a call with investors Tuesday.

The company is building two fulfillment centers: one in New York, which will use robotics technologies to automate operations to the greatest extent possible; and another in California. Despite the startup costs, the fulfillment centers will ultimately allow Dick’s to improve order flow and grow margin from its e-commerce business, which grew 17 percent in the fourth quarter of 2018.

“The overall profitability, once we get past the startup stage, will be favorable — the combination of fulfillment and delivery costs will be lower coming out of the centralized fulfillment centers … than if we do it in stores,” said chief financial officer Lee Belitsky, during the call on Tuesday.

It’s a sensible investment, given that online sales are less profitable, said Neil Saunders, managing director of GlobalData Retail. But he cautions that the approach will only be effective if Dick’s improves in-store experiences that will encourage more customer visits.

“It makes a lot of sense, but at some point, they’ve got to get the stores working as well — the two things need to work hand in glove, and at the moment, digital is doing well to the detriment of stores,” he said. Dick’s reported, in a fourth-quarter earnings release, that same-store sales fell 2.2 percent, and net income fell to $102.6 million, from $116 million year-over-year. — Suman Bhattacharyya

Bed Bath & Brands
Bed Bath & Beyond is launching its first private label line. Called Bee & Willow Home, the line includes products ranging from $4.99 cleaning products to $999.99 furniture. The line is the first of six private label brands that Bed Bath & Beyond plans to launch between now and 2020.

The push into private brands comes at a time when other retailers, from Kroger to Amazon, are flexing their white-labeling muscles more competitively. No longer an afterthought, private label brands are acting as can’t-get-anywhere-else customer lures that just so happen to have high margins. Bed Bath & Beyond is also playing defense, fending off competition from Target and Walmart. Walmart launched its first private label furniture brand, called Modrn, in February. Target’s most well-known private label line in home decor, Threshold, has been around since 2013 and has generated more than $1 billion in sales.

Bed Bath & Beyond used to rely heavily on use of promotions and free shipping to increase its online orders, but is trying to scale that back in order to improve its margins. For example, over Thanksgiving, shoppers this year had to buy at least $19 worth of goods in order to get free shipping — in 2017, there was no minimum purchase threshold. By adding more private label lines — whose inventory Bed Bath & Beyond can more tightly control, it may help the retailer avoid having to offload excess inventory via markdowns in the future. But that’s if Bed Bath & Beyond can truly offer a differentiated assortment of goods, that won’t just leave the company with excess inventory in other categories. — Anna Hensel

Amazon tips from top sellers
New data from e-commerce company Salsify, analyzing 130,000 product pages, showed what top brands in Amazon’s health and household categories do right. Here’s what it found:

  • Top brands have more reviews: At the lower price points ($9.99 and less), the average was 28 times more reviews; at the higher price point ($50 to $74.99), there were 88 times more reviews.
  • They have more photos: The top 10 percent of brands have at least 2x the photos as the bottom 10 percent. had at least two times the images as the bottom 10 percent.
  • More A+ content, at least 10 times higher on average for high-performing products over low-performing products.
  • Short and concise descriptions. Top products in the highest price point ($75 or more) had fewer characters in their product descriptions compared to low performing brands. — Shareen Pathak

News to know

  • Stitch Fix announced in its second-quarter earnings for 2019 this week that the company has hit 3 million active users, an 18 percent increase over the same time last year. It’s an important milestone, but growth has slowed: In Oct. 2017, when Stitch Fix filed for its IPO, it had 2.2 million users, a 31 percent increase over the year before.
  • Truepill, the pharmacy software company that fills orders for consumer healthcare startups like Hims/Hers and Nurx, has raised $13.4 million in funding to expand its operations to the UK and add to its 150-person team. To date, Truepill has delivered 1 million prescriptions.
  • Good American launched an e-commerce fit tool on Tuesday that shows 15 different sizes on 15 different models, ranging in size from 00-24 and modeling its denim and activewear lines. The brand reported it spent 275 percent more on the fit tool photoshoot than a typical e-commerce product page photoshoot and plans to roll out the tool to other categories.
  • Rothy’s has released its first kids’ sneakers for girls and boys, one week after Quip launched its first kids’ toothbrush. The DTC brands are moving in on the children.

What we’ve covered
Life beyond Amazon: Amazon may have reinstated the majority of purchase orders it abruptly terminated last Monday, but vendors and sellers are thinking about how to lessen their reliance on the platform.

Layaway for the digital age: Affirm is pitching point-of-sale financing to online retailers. What could wrong?

Between the lines: What Levi’s said in its IPO filing, and what it means.

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