Amazon's Latest Supplier Purge Is an Indicator of Price Predation
This article fundamentally misunderstands what Amazon recently did (describing it as a &quot;supplier purge&quot;), misunderstands what the fulfillment business is, and incorrectly defines Amazon as a monopoly because it is a trendy thing to say more than it is an accurate thing to say.<p>&gt;If an item sold on Amazon is FBA, that means that the wholesaler’s inventory is completely fulfilled by Amazon. The wholesaler sends a large portion of their inventory in bulk to Amazon’s fulfillment centers, where it is stored until a customer decides to buy it. Amazon then packs and ships the items to customers. It also incurs all the costs associated with these activities, many of which are variable costs. In exchange, wholesalers pay a per-unit fixed fee. The introduction of same and next-day delivery into the FBA scheme seems to further increase the cost of this service. Amazon’s shipping costs, which include sortation and delivery centers and transportation costs, amounted to $27.7 billion as of 2018.<p>This is generally wrong, and mixes up what vendors enrolled in Vendor Central do. Amazon sends vendors POs and then sells the products. The end. Some vendors also have some additional fees but it is not the same as a &quot;Seller&quot; who is not a wholesaler at all, but a business that owns the products being sold FBA and FBM the entire time. Amazon collects fees on each of those sales and never owns the inventory in question.<p>&gt;On the other hand, when an item is FBM, fulfillment is done by the wholesalers.<p>No, they are not wholesalers. This may seem like a dorky nitpick but it isn&#x27;t. A wholesaler sells the products to Amazon. The &#x27;purge&#x27; complaint was from wholesalers, called Vendors or Vendor Central users in Amazon parlance.<p>&gt;Thus, it appears that Amazon’s market share is closely tied to its ability to accomplish its “fulfillment network optimization” goals by bullying wholesalers to move from FBA to FBM.<p>No, they are just not issuing purchase orders. No purchase order, no wholesale relationship. They explicitly communicated to Vendors who are not receiving anymore POs to tell them to consider selling their products on Amazon as Sellers, which again means not being a wholesaler anymore but becoming a retailer. They can sell FBM or FBA but Amazon collects fees either way. That is entirely up to the seller.<p>The pressure is just Amazon saying &quot;we won&#x27;t buy your stuff anymore, but you can still sell on Amazon running your presence yourself or selling it to another Amazon seller.&quot;<p>I could just keep going but it is really obvious that this author only knows about how the Amazon marketplace works from financial reports and has <i></i><i>zero</i><i></i> experience in how the Amazon marketplace actually works.