Each week I share the top news that impacts brands and merchants who sell on Amazon. My digest for this week includes a new subscription model for Prime Pantry, new estimates of just how much third party marketplace sellers contribute to Amazon’s product assortment, a new process for Amazon to counteract package theft and fraud losses, and the door finally closing for one of three Amazon selling platforms.
Marketplace Sellers Account For 90% Of Products On Amazon
Analysts at Mizuho Securities recently calculated that as much as 90% of the product SKUs (stock keeping unit, a measure of unique product types) on Amazon are sold by third party marketplace sellers, according to Bloomberg. Marketplace sellers are independent businesses and brands, some very large, that sell to customers on the Amazon platform, paying a percentage-based fee on each sale. If 90% of SKUs are stocked by third party sellers, it means that Amazon only holds inventory for around 10% of the products for sale on the website. This allows Amazon to free up capital it would otherwise have tied up in inventory, and spend it in other areas like expanding their fulfillment network.
But Amazon has recently come under scrutiny from consumers and businesses alike who claim that the retailer is allowing counterfeit products to be sold on the site. And thus a key drawback of the marketplace model comes to the fore: lack of control. Lack of control over inventory levels, pricing, quality, and potentially even if a given item is legitimate or not.
A New Subscription Model For Prime Pantry
Amazon announced plans on Friday to move its Prime Pantry service away from a flat fee of $5.99 per box to a $5/month subscription model. Prime Pantry delivers non-perishable household goods to customers in limited-capacity shipments.
Previously, Prime Pantry users were looking to optimize their shipments by fitting as many items into a shipment as possible to get the most out of the $5.99 shipping fee. But it was time-consuming and mentally taxing for customers to maximize the box contents. By moving to a subscription service, Amazon can count on consumers placing orders more frequently so they can make the most out of the subscription, rather than painstakingly building a shipment which they might abandon because of the effort.
Brands who sell on Amazon stand to realize incremental increases in sales as consumers take out these subscriptions and spend more on the Amazon platform over their lifetime. Companies who continue to invest in making their products easy to find and attractive to customers will benefit from further entrenchment of Prime subscription programs in US households. But companies who primarily distribute their products through brick and mortar retailers may come under more pressure if wholesale purchase orders start drying up as a result of less foot traffic and online orders through these channels.
To make the most of Amazon’s foray into subscriptions, brands need to optimize their presence on the platform so their products are discoverable and compelling to subscribers. There are several programs and promotions that brands can use to get traction here, including Amazon’s own ‘Subscribe & Save’ program which many brands are eligible to enroll products in.