Andrea Leigh

    • Media Contact:
      Natalie Raines
    • Member Type(s): Expert
    • Title:Vice President, Client Services
    • Organization:Ideoclick, Inc.
    • Area of Expertise:Amazon, eCommerce

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    Amazon's Rumored Impending Supplier Purge - Why, and what vendors should do...

    Monday, June 3, 2019, 1:54 PM [General]
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    “Third-party sellers are kicking our first-party butt. Badly,” Jeff Bezos wrote in the 2019 annual shareholder letter. This is an important statement, the first of its kind, followed by hard data – yes, data! – detailing the size of Amazon’s third-party platform – meaning, the amount of total sales generated by third party sellers on Amazon.

    As Amazon’s share of online sales is expected to exceed 50% this year (as reported by eMarketer), and in 2018, approximately 58% of total sales came from third-party sellers. This, in conjunction with speculation that Amazon is planning to cut all manufacturers below $10M in annual sales, is the writing on the wall – the third-party platform has “won”.

    It's worth noting that this supplier purge is still only a rumor, and that Amazon denies it. However, many of us have heard it from Amazon directly. Although the details and timing have been vague...

    Why is Amazon pushing their third-party platform over first-party direct relationships? And why are they reported to – very soon, according to @Spencer Soper - push many small manufacturers into the third-party program? Lastly, why in the world would they share data on it?

    1. Third party is more profitable for Amazon

    Fulfillment and shipping costs as % of net revenue are increasing at a rapid pace as Amazon supports programs like Prime Now and Same-Day Shipping in many locales. Costs will continue to increase with Amazon’s future implementation of One-Day shipping as the new gold standard for Prime, serving 100MM consumers with faster shipping than any other retailer.

    Without decreasing retail product costs or increasing funding from manufacturers (and believe me, Amazon tried *real* hard to get them this year during Annual Vendor Negotiations) Amazon loses margin. 

    Third party, on the other hand, is inherently profitable - and consistently and predictably so, as Amazon makes a commission on every single sale. One can see how in particularly profit-challenged categories, third party sellers might make up ALL of the profit.

    Lastly, Amazon’s hiring has spiraled, and revenue/headcount has decreased dramatically, which brings me to #3:

    2. Third Party Scales and Grows Faster

    Simply put, Amazon employees can only onboard and manage so many vendors and items in the first-party platform. They’ve had some success scaling and automating, but at the end of the day, directly buying, managing, and pricing products comes at a high cost to serve. First party profit is also variable, subject to price matching and terms negotiations.

    By contrast, third-party sellers are pretty self-sufficient, and have a lower cost to serve. They run their own pricing, forecast their own inventory, and ship it in themselves. Third-party sellers also manage their own marketing. They don’t ask Amazon employees to sit through line reviews or troubleshoot their chargebacks. At the end of the day, Amazon collects commissions on all sales from 3P vendors, reaping a tidy profit and yielding a business that is, by nature profitable and high-growth. Seems like an easy choice.

    Remember the days when Amazon’s first party business grew double-digits every quarter? Well, those days are behind us, and Amazon’s retail (first party) growth is flattening - in Q1 2019, the retail platform only grew 9% Y/Y. That missing growth must be made up somewhere. 

    3. Having lots of small suppliers introduces more risk

    The more first party suppliers they work with, the more risk Amazon introduces into their business model…and potentially passes onto the customer. For Amazon, it’s difficult to properly vet, police, and remove – when necessary – small suppliers who may be selling counterfeit or otherwise unauthorized product, or manufacturers who haven’t met certain safety or testing standards, for example. 

    Amazon has spent years holding Vendor Managers to extraordinary assortment growth goals. For example, years ago when I was a Vendor Manager, I was given a goal of adding 200 new items/week to the Grocery category. As a Vendor Manager, signing a distributor or a vendor with an especially vast assortment was the golden ticket! After years of adding every supplier under the sun – even encouraging suppliers to set themselves up as self-service, in a now defunct program called Vendor Express - Amazon has introduced risk. 

    For example, rumor has it that some counterfeit goods made it into Amazon’s first party business – sourced from a small supplier, and that was the driving force behind many small manufacturers not receiving purchase orders a few weeks back.

    4. Amazon needs to be viewed as primarily a marketplace – not a retailer

    Amazon’s race to the top has begun ruffling some feathers – and some, like Elizabeth Warren, are making it central to their political platform to break them apart into tiny chunks.

    This could explain why Amazon’s notoriously private CEO – once quoted as saying something like, “We’re in the information gathering business, not the information sharing business” – is spelling out that third party sellers make up more than half the business. In addition, the shareholder letter focused on small businesses Amazon has helped outgrow their garages on their third-party platform. The message was, “we’re the good guy – we enable small businesses to be successful.”

    I’m a sub-$10M/year manufacturer! Help! What’s going to happen to me?

    First, you’re going to be fine. The third-party platform is superior, I promise! There’s a lot to love: Superior reporting. The ability to set your own retail prices. Inventory control. No.More.Chargebacks! Plus, we heard the third-party fees may be reduced in the future, so it may be more profitable for you, depending on the category and product type.

    At Ideoclick, we work with many, many hybrid sellers. It only takes two minutes to set up a seller account, and it costs $40/month. And it is definitely possible to see the same sales volume as a seller that you're seeing in your retail business. However, there is a learning curve if you’re used to the first-party business. You’ll need to have a pricing strategy. You’ll need to be able to forecast demand. And you’ll need to manage sales tax remittance in all states. 

    We’d love to help; feel free to get in touch. If you want to go it alone – you can do it! There are many, many resources available to you. These guys wrote a great ditty on how to be a seller. The Amazon Seller forums offer a wealth of information. There is a plethora of free resources available to help you navigate the space. I think you’ll find the seller community a very welcoming place for your business to continue growing!

    Happy selling!

    Five Peculiar (and highly effective) Amazon interviewing practices that build winning teams

    Tuesday, May 7, 2019, 5:10 PM [General]
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    During my time at Amazon, I interviewed nearly 1,000 candidates for employment – everything from Data Scientists to Vendor Managers to senior leadership. While I’m no HR person, I was one of the company’s first round of “Bar Raisers”, and elite group of specially trained interviewers who were responsible for facilitating hiring decisions and training other managers on how to interview for maximum success. Today, I’m back in the hiring seat at Ideoclick, having hired over 75 employees in the past 18 months and flexing those old interviewing muscles!  

    Amazon has a notoriously rigorous interviewing process, and here are some tactics we used at the best of the best.

    Note: These ideas assume you have a steady stream of job candidates, something everyone is not always lucky enough to have…

    1. Try your hardest to weed them out (vs. trying your hardest to hire them)

    Develop “make it or break it” competencies for your role. Does this person need to charm clients? Process large amounts of data? Dance a jig? Decide what you care about, and ask it to every candidate for comparison. The first candidate’s answer might seem good, but the second candidate’s answer might be plain awesome, rendering the first candidate “meh”. Also, ask what you really want to know – this isn’t the time to be shy. Are you puzzled by a gap in their resume? Worried about why they hopped three companies in three years? Wondering why they *really* left their old company, or why they listed surfing on their resume as a hobby (while they've only ever lived and worked in Mineesota?) ASK.

    Here are two interview questions I can’t live without:

    How would you solve [insert largest business challenge you’re currently facing]? 

    First, you get to see how they’d approach the problem (or be overwhelmed by it.) Second, even if you don’t hire this person, you’ll get some ideas. Upon asking a candidate this question recently, I received an excellent idea that I’m now implementing in my business, making even that mediocre interview *not* a waste of time.

    “What are your strengths and weaknesses?” Then, following their answer, “What would your family and friends say are your strengths and weaknesses?”

    If their weakness is presenting in front of groups, for example, and this job is all about that, they’re out. The second part gives you a window into their character. Are they hyper-organized, which makes their spouse crazy? Do their friends hate how last-minute they are? 

    You’ll be surprised what people share with you when they start talking about their family…and how it helps your hiring decision.

    Also, don’t accept their first answer – dig in. Ask for details. Which leads me to #2…

    2. Make it stressful

    Yes, I’m suggesting stress interviews. You wouldn’t want someone on your team who caves under pressure, would you? So, apply a healthy amount. While I’m not suggesting nonsense brain teasers like, “why are manhole covers round?”, drill into their answers. Pretend your life is at stake over their results. (Note: The more stake you have in your company’s game, the better you’ll be at this.) What data shows it was a success? How much, when? Who was the most difficult stakeholder, and how did they overcome it? What could they have done better? What would have happened without them on the project? A good interviewer can spend 45 minutes pulling apart a single interview question...and a good candidate will roll with the punches.

    3. Have an independent interviewer – someone *not* in the management chain – to be the voice of reason

    Often, we’re desperate. We’re overworked. We just NEED TO FILL THIS ROLE, NOW, man, or our heads are going to explode. It’s not surprising that our desperation clouds our judgment. For example, I once bar-raised for a hiring manager at Amazon who wanted to hire a guy who was clearly intoxicated during his interview. His answers were OK, I guess, but the guy was drunk as a skunk. Not cool. Anyway, Amazon knows about desperation, and they have a mechanism to prevent against it – having someone on the interview loop who isn’t personally motivated to fill the role. A voice of reason, or “bar raiser”.

     Sometimes we all need to be saved from ourselves.

    4. Make all interviewers sit together in a room after the interview for a “debrief”

    If you don’t already do this, you should. It allows the team to calibrate on the candidate, discuss the needs for the role, and it gives the recruiter valuable intel on how to find better candidates next time. Recently our group debriefed a candidate and realized we had the recruiter looking for the wrong profie altogether. We had a productive discussion about the team's needs, and changed course. Questions like, “would anyone fight for this candidate?" and "what's their superpower?" are great starter questions. Which leads me to #5:

    5. Find, and discuss, their superpower

    Pretend they are a superhero, what would their superpower be?

    This helps orient the conversation to the candidate’s strongest asset, and it encourages a discussion on whether that’s an important void in the organization.  Are they faster than a speeding bullet? If your organization values thoughtful deliberation, they may not be a fit. They could sell ice to eskimos? If it's a sales role, great! If your open role is an actuary, maybe not so great.

    Can’t find a superpower?  Sorry, they're probably not a good hire. (See #1, “Try your hardest to weed them out, vs. trying your hardest to hire them.”)

    What best practices do you employ when interviewing? 

    Vendors Snubbed by Amazon's Ordering System - it's not me, it's you

    Tuesday, May 7, 2019, 1:28 PM [General]
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    Recently, many vendors selling on Amazon didn't receive purchase orders on schedule. What does it mean? Was Amazon breaking up with you? Some are hurt and horrified. Others are happy, because they were totally ready to break up, like, two years ago, and be a seller instead.

    First, don't panic. For many of you, this could be a false alarm (see the variety of messages our clients received below). Maybe you'll get a PO next week.

    We’ve used our data, experience, and intel to put together our version of the Amazon’s story for you.  Here’s what you need to know.

    Help! I didn’t receive a purchase order this week from Amazon. Did Amazon break up with me? What's going on?

    Amazon has been working for the last two years preparing for a day when they finally decide whether a brand should be sold vendor, seller, or both based on metrics like profitability and sales velocity. Here’s what they’ve been up to:

    • They’ve built control mechanisms into the seller platform to protect the customer experience regarding price, such as controls over seller retail pricing – buybox suppression and/or applying their own pricing discount
    • They are integrating their vendor and seller teams internally to align with the concept of a “Supplier”, vs. a “Vendor” or a “Seller”
    • They are collecting data comparing profitability across platforms at a brand level – and understanding impact to sales
    They’ve created near-parity in the advertising platforms across Vendor and Seller
    • They've beefed up brand "controls" through Brand Registry
    • They are working on the launch a “merged” vendor and seller portal

     They’re ready, and no time like the present to put their plan in action.

    How do I know if Amazon has chosen vendor or seller for me?

    Manufacturers who did not receive purchase orders this week appear to fall into three groups, based on the content of responses from all of the Contact Us that have been filed this week:

    Group 1 - We’re really just too cool for you. Sorry, but it’s over. It’s not you; it’s me.  Please open a seller account and sell your widgets there. It’s been fun.

    Group 2 - We’re not that into you, but there are some things to like. However, we want to date other people. We might like to go out again, sometime in the future, if you’d just take an interest in self-improvement (like, lower your costs). Then, maybe.

    GROUP 3 - We really like you, but we’re scared of commitment. Or, we made a mistake, or maybe we're just going to order every other week. Let’s take a break for a week and see what happens. Note: Maybe you'll get scared and lower your costs.

    Manufacturers who are still getting purchase orders fall into two groups:

    Group 5 - We’ve proposed to you and have gone a little fatal attraction, killing off the other guy you were dating (ie., Seller Central) or making strong threats with hopes you'll never date Seller Central.

    Andrea, the dating analogy is kinda dumb. What does this really mean? What should I do?

    First, don't panic! You might still get a purchase order next week. No one truly knows what Amazon is doing. If you don't:

    Group 1 – Open a seller account if you don’t already have one. Amazon’s probably through with you, and you want to minimize interruptions to your sales. Make sure to set up every one of your items there, and replicate your Amazon Advertising campaigns for Seller Central. (Note: We can help!)

    Group 2 – Open a seller account if you don’t already have one. Consider whether it makes business sense for you to lower costs on some items to continue supporting your Vendor Central business. 

    Group 3 – Open a seller account if you don’t already have one (see a theme here?) Consider whether it makes business sense for you to lower costs on some items to continue supporting your Vendor Central business.  This group may still have a Vendor Manager; ask questions if you do. 

    Group 4 – *Winner winner, chicken dinner!* Keep on selling hybrid!

    Group 5 – Get creative on ways to continue selling hybrid

    I still feel dumped. What else can you tell me?

    Hybrid is more important than ever. Not to sound like a broken record, and I’ll spare you by linking to all of my past articles where I tell you to GO AHEAD AND OPEN A SELLER ACCOUNT ALREADY, MANUFACTURERS, but please open a seller account. If you are unable to do so, logistically, from an accounting perspective, philosophically, or even emotionally, don’t just sit around and cry abound being dumped, eating bonbons with your cat.

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