In this four-part series, we’re exploring brand manufacturers’ top challenges to provide clarity on the current market environment and empower you to adapt faster. So far, we’ve explored the current state of retail and how brand manufacturers can brave the apocalypse, the rapid rise of digitally native sellers and how brands can compete, and the retail war between Amazon and Walmart and how brands can respond to the escalating pricing pressures.
Today, we’re wrapping things up by taking a deeper look at the force keeping all brand manufacturers up at night — Amazon. With a market share that’s expected to reach 50% by 2021, this retail giant represents both opportunity and angst for brands everywhere.
Here’s what brand manufacturers need to know to effectively adapt to Amazon’s increasing dominance in 2018.
Amazon Seller Fees Continue to Climb
This year, Amazon announced that it would be raising its third-party seller fees in a number of categories including apparel, accessories, sunglasses, and handbags. They also raised their Fulfillment By Amazon fees for nearly all size categories, mainly targeting large and heavy items. These significant and seemingly abrupt changes underlined an undeniable truth: Amazon has great power in the marketplace, and brands have limited control over what might come next. As Amazon continues to gain popularity with consumers and win market share, it is likely that other categories will suffer a similar margin dropping fate. In order to maintain their margins, many brand manufacturers are now pursuing multi-channel selling strategies.
Amazon Continues to Gain Leverage Over Brands
Regardless of how brands are choosing to sell on Amazon, the eCommerce titan continues to exert its control, and the disparity seems to be growing. For example, brands pursuing 1P Amazon selling strategy have no control over product pricing. In exchange for attractive bulk purchase orders by Amazon, brands must essentially wave goodbye to their MAP policy. Perhaps most alarming is the compounding leverage and profits the retail giant gains as a result of the wholesale relationship. One of the best ways to fight these losses is to pursue a hybrid Amazon selling strategy. Learn more about selling 1P versus 3P here.
Amazon is Emerging as a Manufacturer
Nowhere is Amazon’s disruption to brands clearer than in their pursuit of manufacturing in-house. From private label clothing lines to housewares, Amazon is selling more and more products across categories. Directly competing with marketplace sellers, Amazon’s strategy is clear: identify top selling products and manufacturer and sell their own. This approach is shifting Amazon’s relationship with brands from harmonious ally to competitive rival.
Looking for a partner to help you navigate the eCommerce space? Reach out today to learn how you can adapt to Amazon’s rising power and drive profitable growth through direct to consumer sales.