By Martin Heubel, Founder and Director of Consulterce, a strategy consultancy for B2C Household & CPG brands.
Amazon’s cost-cutting focus isn’t news to vendors. Destocking, delistings, and margin compensation requests have become routine when managing the retailer.
But are Amazon’s ambitions to improve its bottom line even paying off?
Looking at its P&L, Amazon posted a 3.9% operating margin in Q1-2023. Considering that it posted margins of up to 8.2% only two years ago, this may not seem much.
But its relentless focus on cutting costs seems to pay off. Three major factors can explain this:
- Investments to restructure its US fulfilment network at a regional, rather than national level.
- An increase in commission and fulfilment fees for 3P sellers and a more firm stance in vendor negotiations.
- Layoffs, budget cuts and forced attrition across divisions, although the full impact is yet to unfold in Amazon’s P&L.
So what does this mean for you as a vendor that wants to profitably navigate the marketplace in 2023 and beyond?
You need to adapt to Amazon’s reality
Here are three ways to do exactly that:
1. Control your distribution
Selling your products to any- and everyone is a surefire way to kill your margins with Amazon.
To sustainably address front-margin headwinds, your organisation must review the incentive structures with distributors and wholesalers. Most of them are 3P sellers and will pass on bulk discounts to compete with you for the Buy Box.
In other words: don’t create and feed your competition.
2. Launch a channel-specific selection
It doesn’t make sense to ship products with excessive packaging dimensions via the online channel.
Amazon has developed standards like Frustration-Free Packaging (FFP) or Ships In Its Own Container (SIOC).
So make sure your teams launch products with the sales channel in mind. The upfront costs will almost always be justified by not having to pass on £ millions to Amazon as margin compensation.
3. Review hidden P&L cost centres
Trading with Amazon can become expensive. Especially if you don’t have any insight into the line-level profitability of your listings.
So make sure to use ASIN-specific profitability dashboards from the start. This will allow you to effectively spot and address hidden cost centres (chargebacks, shortages, etc…).
For further insight and support, contact Martin Heubel here
