Amazon Cuts Ties With EU Distributors

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Amazon
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is cutting ties with its EU distributors and will source goods directly from the brands. It is another step by CEO Andy Jassy, 55, CEO to control costs and keep prices low for Amazon customers. Jassy, a Harvard Business School graduate, joined Amazon in 1997 and in 2005 developed the cloud computing platform (Amazon Web Services) with Jeff Bezos.

CEO Jassy has been aggressively trimming costs wherever possible. Some cuts have been through the layoff of about 18,000 employees; there is also a hiring freeze in effect, and management has cancelled some process. The end result will be a trimmer, more agile company that can face tough economic times ahead.

By cutting ties with distributors, Amazon gains greater control over its relationship with brands who want to sell their products on the Amazon site. This could mean that Amazon will have greater control over costs and actual product selection. After all, distributors are middlemen who add to the cost of every product. Working through them in the early days meant accessibility of products when Amazon was a smaller company, but now they represent a significant cost factor that is not necessary.

These days, Amazon has a relationship with most major brands in each classification of merchandise, ranging from kitchen brands to automotive brands. Amazon, at the same time, is automating its relationship with vendors to be more efficient. It has downsized its staff dedicated to managing each product category, thus improving profit margins, and often improving the actual operation as well.

The Information quotes an unnamed spokesperson: “As is common for all businesses, we regularly review our approach to product sourcing as we try to control our costs and keep prices low for customers. With this in mind, we’ve decided to focus on sourcing certain products for our European stores directly from brand owners.” However, Amazon will continue to source products from wholesalers and distributors if they are the brand owners or have an exclusive distributor agreement with a product. This, according to experts, is probably a very small group since there are often multiple distributors, resellers, or retailers making offers on a single product listing.

The Amazon Marketplace is populated by third party sellers. It is probable that some distributors will continue their activity as third-party sellers on the Marketplace, while Amazon may also feature a product directly from the manufacturer offering it.

There is no doubt that the European action will become a global decision after the move has been implemented and proven. The change could have a lasting impact on a distributor’s business. Some vendors use the revenue from their distributed products to finance the development of their own brands, this according to Aidan Duffy, agency principal at DFS ecommerce (and quoted by The Information). Sometimes, the new brand is even an improved version of the original.

POSTSCRIPT: Amazon, once known primarily as a tech company, is learning ways of retailing under the guidance of its new CEO. It is exciting to watch the metamorphosis. Most major retailers deal directly with brand manufacturers and designers. Often these relationships shape a manufacturer’s assortment since retailers know what their customers want and share those insights.

Amazon will delay implementation of the program until April, two months from now, in order for wholesalers and distributors to prepare for the change. It should make the transition easier.