Cost pressure is hitting Amazon from all sides right now:
- Increasing fuel prices
- Workers demanding pay rises
- High costs to liquidate excess inventory
So Amazon has to close the leaks in its bottom line.
To do that, the online retailer already hiked FBA fees for US sellers this year.
But Amazon will also ask 1P brands to support its margins (once again).
In the upcoming annual negotiations, Vendor Managers are under pressure to request:
- Cost price reductions,
- Margin compensation agreements, and
- Higher trade terms.
And they will use delistings and CRAP to underline their position.
The above requires brands to prepare themselves for challenging commercial discussions. To do that, it’s no longer enough to focus on cost prices and trade terms. Brands also need to negotiate cost savings along their joint supply chain.
Amazon offers these cost-saving initiatives through standardised programmes:
- Full Truck Ordering
- Direct Fulfilment
- Pallet Ordering
- Direct Import
- Vendor Flex
The problem? Vendor Managers will focus on cost prices and trade terms improvements because they want to avoid lengthy discussions around the supply chain.
But with the current macroeconomic climate, it’s no longer enough to look at cost prices and back-margin investments alone.
Your teams need to direct discussions towards unlocking efficiencies. So make sure these form a core objective for your upcoming negotiations with Amazon.
For further insight and support, contact Martin Heubel, Founder and Director of Consulterce, a strategy consultancy for B2C Household & CPG brands (Email: [email protected])
