Amazon cutting ties with small vendors - What happens next?

In September 2024, Amazon informed hundreds of small businesses that it would be closing their vendor accounts. 

The announcement left many small ecommerce businesses scrambling to figure out their next steps, especially as it came just before the peak season.

If your business is affected, don’t panic - it doesn’t necessarily spell disaster for your small business.

In fact, by adjusting and diversifying your Amazon selling strategy, your business can reduce the impact of this change on sales and growth. This shift can also help your business become more competitive and maximize profits.

In this article, you’ll learn why Amazon is pivoting away from smaller vendor accounts and resellers, what this means for Amazon Vendor Central, and how to pivot your Amazon strategy to come out on top. 

Why did Amazon Vendor Central cut ties with small vendors? 

Starting November 9, 2024, small businesses on Amazon Vendor Central, defined as EU accounts with under two million in annual sales and US accounts with under five million, will no longer be able to sell through their 1P (first-party) accounts.

Does this mean the end of Amazon Vendor Central? In short, no.

So, why is Amazon closing these 1P accounts for smaller brands? At its core, this is a strategic move for Amazon intended to improve efficiency.  

Although they contribute to overall growth, smaller sellers consume Amazon's resources without generating enough profit to justify the cost. By cutting ties with SMBs, the marketplace giant can focus its resources on larger enterprise ecommerce vendors.

Amazon's largest vendors generate significantly higher profits, so focusing on these top accounts can prevent its resources from being stretched thin over a large volume of sellers. Amazon is prioritizing profit and streamlined growth rather than overall growth, and it’s unlikely to reverse this decision.

Small vendors have until the end of the year to sell off their remaining inventory on Vendor Central, which allows the marketplace to start the new year with zero inventory.

How pivoting away from Vendor Central can be beneficial for your SMB

The timing of this move is challenging for affected ecommerce brands that are now left struggling to pivot ahead of the busiest time of year. SMBs solely focused on Vendor Central as part of their Amazon strategy and a non-existing Seller Central or 3P account will be hit the hardest.

If that sounds like you, don’t lose hope! Amazon’s announcement offers a strategic advantage for your ecommerce business in the long run.

The advantage of Amazon handling the logistics and operational side of your business frees up your time to focus on other important tasks as a business owner, a benefit many find appealing.

However, let’s flip the script for a moment. By taking on the “reselling” aspect, Amazon Vendor Central limits how much control your business has over your listings:

• It sets the pricing, which can negatively impact profit margins in the case of price reductions.
• In the 1P model, Amazon can restrict fulfillment options, as brands cannot choose a third-party logistics provider (3PL).
• Vendor Central agreements further restrict how your brand represents itself and bundles its products.

So, pivoting towards 3P selling or shifting to a hybrid 1P/3P model can be the perfect opportunity for your ecommerce business to uplevel its Amazon strategy. 

Why small vendors should shift to a Seller Central or 3P model

If there’s one thing we can all take away from Amazon’s announcement, it’s this: staying agile, by diversifying your Amazon strategy, is imperative for thriving on Amazon Marketplace. 

A Seller Central, or 3P, account gives you increased control over your product listings, allowing you to optimize your products for profit, brand image, and other business goals.

Here are a few ways it can do so:

• You have control over pricing allowing you to set better profit margins and maximize profits.
  
  
• Handling customer interactions directly allows you to build a direct relationship with your customers; this crucial level of engagement is missing in the Vendor Central or 1P model.
  
  
• Your business can choose its fulfillment options from Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM), with FBM often being more cost-effective for smaller brands.
  
  • Being solely responsible for fulfillment can be overwhelming for many SMBs, but a popular alternative is to use a cost-effective and trusted fulfillment partner.
    
    
• With a 3P or Seller Central account, your brand can use longer, detailed SKUs for product listings.
  • These SKUs can consolidate key data points, such as product subcategories, source, average sales rank, purchase price, and break-even sales price.
  • Detailed SKUs streamline tasks like manual repricing, enabling more strategic adjustments for improved profit margins.
  • They also help with managing inventory and provide granular data for accounting purposes.
    
    
• You can use other valuable data - consumer insights, conversion rates, Buy-back percentages, sales totals, and even qualitative insights from direct customer interactions—to make empowered decisions about your products and listings. 
  
  

If navigated strategically, the move to Seller Central can mean a profit-optimized, diverse, agile, and overall improved Amazon selling strategy.

The challenges of moving to Seller Central 

As a small business, your bandwidth can make full responsibility over seller operations can be challenging. After all, your team now has to:

Set up on Seller Central, which can be a time-consuming process, often involving video interviews and lengthy backlogs.

Move from an invoice-based wholesale model to a retail consignment model for cash flow. 
Complete a catalog upheaval, along with the other challenges of navigating a small business during the busy holiday season.

That’s why ensuring you have the right support is crucial to making this pivot successful and seamless. Working with Amazon Marketplace experts, like the team at ChannelEngine, is a great way to get that right support and successful pivot.

If your business hasn’t been affected by the announcement, setting up Seller Central and adopting a hybrid business model on Amazon is still a smart choice. This approach keeps your Amazon strategy agile and allows for greater flexibility. A hybrid selling model provides you with strategic control, scalability, and a broader customer reach.

Successfully pivot to Amazon Seller Central with ChannelEngine

Was anyone truly blindsided by Amazon’s decision to cut ties with small vendors? Not exactly.

Were many businesses devastated by the timing of the news? Absolutely.

The drastic change highlights the importance of a diverse Amazon selling strategy for small vendors. Although daunting, now is the time to set up Seller Central or shift to a hybrid (1P and 3P) strategy.

ChannelEngine has helped many businesses make this change and sell successfully on Amazon. We specialize in marketplaces and can offer an extremely tailored approach for your ecommerce brand.