Last month, Amazon started sending out termination notices to some brands that sell items in bulk on its platform. The brands affected appear to be part of Amazon’s 1P invite-only program, where CPG giants like Nestle and P&G sell inventory in bulk to Amazon.
“We’ve made the decision to stop sourcing products from your company, as part of our regular review of product offerings, and a strategic realignment to optimize our operations—effective Nov. 9 our vendor relationship will be terminated,” read one of the termination notices sent by Amazon’s Vendor Central Team shared on LinkedIn.
“Like all businesses, we regularly review our product offerings and occasionally make changes,” wrote Maria Boschetti, an Amazon spokesperson, in an email to Retail Brew. Amazon made the decision to stop sourcing products from some US vendors following a routine review.
Vendors that have received termination notices are feeling overwhelmed, experts told Retail Brew. One option for those vendors affected may be to switch to selling on Amazon’s marketplace as a third-party seller.
“This is a move toward focusing on more profitable vendors,” Dan Brownsher, founder and CEO at Channel Key, an Amazon e-commerce agency that works with mid-market and Fortune-1000 brands, told Retail Brew.
Brownsher, who works with more than 70 clients on Amazon, said this seems to be a continuation of Amazon focusing on “their most coveted brands and their most profitable vendors that are doing some level of volume on the platform.”
Martin Heubel, an advisor to 1P Amazon vendors, told Retail Brew that broadly speaking, Amazon seems to be targeting brands that make in the range of less than $1 million to $5 million in annual sales on Vendor Central in the US and overseas.
Heubel has been working with more than a dozen vendors that sell items ranging from housewares to sporting goods and consumer products on Vendor Central that have recently received notices, though he declined to share the names of his clients.
Heubel said brands that have received notices are feeling anxious about next steps.
“It’s a mixture between being overwhelmed and being very surprised, especially with such a short notice period—and especially ahead of such a key quarter where this holiday season is just upon us,” Heubel said. According to Heubel, Amazon is giving some brands a notice of two to three months, but 1P vendors overseas are also getting notice to terminate six months in advance.
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Changing Vendor Central: Amazon’s review of Vendor Central comes at a time, when some have speculated that the company may be trying to scale back. Heubel believes the cutback on 1P vendors integrates into a wider storyline that Amazon may be pursuing.
“They’re really focused on improving their operational efficiencies,” Heubel said, and the same applies to its retail business.
“On the vendor side, each vendor requires, usually, a dedicated buyer called the Vendor Manager in order to maintain the business relationship,” Heubel explained. “And Amazon has to deploy all of these buyers in order to cover tens of thousands of vendors, and in the attempt of reducing its cost footprint” he added.
Switcheroo: As of now, Amazon is inviting vendors that are being forced out of its 1P model to sell their products on Amazon as independent sellers. Brands affected can switch to operating as a third-party seller on Amazon’s superstore.
Sellers can maintain access to the same Amazon customer base and can choose from Amazon’s fulfillment options. But this is easier said than done. One of the brands that sells on Vendor Central is petcare brand Petmate, and the brand advised affected vendors to get agency support from companies that help merchants with setting up their Amazon store.
In an email, Darren Silverman, SVP (e-commerce and insights) at Petmate, told Retail Brew that vendors being forced out of 1P “need to immediately get some [requests for proposals] out for agency support to shift to 3P. That is a very heavy lift and pivot for an internal team to manage.”
Brownsher said if wholesale through Amazon is no longer working, then wholesale through a third-party agency like Pattern or Spreetail could be an alternative to be explored.
Still, these transitions present challenges for 1P vendors. Heubel said brands that rely solely on Vendor Central as their retail partner will need to shift toward diversification and scale up on other platforms.
“Ideally look either at a hybrid model to expand,” he said, “or opening up a Seller Central account, even if it's just a backup, to kind of understand how it works.”