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Inside Amazon

Inside Amazon (Nov 25th, 2016)

Happy Black Friday, all.

We'll be back with a full issue of Inside Amazon on Tuesday – packed with news coming out of Black Friday and Cyber Monday. In the meantime, William has a column to share as a special edition today.

Enjoy – and as always, hit reply and let us know what you think!

Are there too many products on Amazon?

Amazon is known as the everything store. You can buy anything from cars (see last week’s edition) to fireplaces to Cheerios. Amazon’s goal is to grow their marketplace and stock every product in the world. This ambitious goal leads to an absorbent amount of similar products with minimal variation. Does Amazon really need 1896 different garlic presses or 27,937 different yoga mats?

Amazon has more than 24 sorting centers and more than 95 fulfillment centers in the United states alone. A lot of these fulfillment centers are more than one million square feet and will specialize in a specific product category or size. Though they have a large number of employees (hiring 140,000 seasonal workers this year) and an army of robots, it is still not enough space or manpower.

Amazon has recently put a moratorium on new 3rd party sellers as a way to combat their bursting warehouses. Amazon has too much stale inventory. 3rd party sellers are incentivized to over-supply inventory due their “set it and forget it” business model. These sellers will send many months of inventory to be stored at Amazon’s warehouses and let it sit idle because Amazon’s storage fees are so minimal. This is a nightmare for Amazon; they want lean warehouses.

This is one more reason why Amazon is switching to a vendor-focused model instead of an seller-focused model (as stated in last week’s newsletter, Amazon would prefer to stock every product and sell the product themselves through Vendor Central as opposed to third party sellers offering products via seller central). If you allow the 3rd party sellers to manage their inventory levels they are incentivized to never run out of stock and are barely punished for having too much inventory. When Amazon orders from manufacturers in weekly quantities they can be lean and have the perfect amount of inventory in stock--maximizing the turns within each warehouse.

In the same spirit, Amazon has also pushed harder for their vendors to drop ship orders for them through a new program called “Dropship Central”. They also are allowing top 3rd party sellers to ship their own inventory and still with the benefits of Prime through a program called merchant fulfilled prime. The warehouse space problem has become so bad that Amazon will pay for the shipping at certain times to encourage sellers to pull their inventory.

Amazon does not need 1000 different types of every product. It can be the “everything store” without clogging our shopping experiences with spammy products. At the same time, it would allow Amazon to have a leaner operation and not have so much “junk” clogging up their fulfillment center’s shelves.

William Tjernlund is an experienced Amazon seller and consultant. To learn more about him, check out this interview or follow him on Twitter.

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