**London**: Amazon’s wholesale suppliers face stalled price talks due to a 145% tariff hike on imports from China, prompting many to explore switching to third-party marketplace selling for greater pricing control amid mounting financial risks and uncertainty.
A notable trend is emerging among Amazon’s wholesale suppliers as they consider transitioning from the company’s first-party vendor programme to becoming third-party sellers on its marketplace. This potential shift appears to be spurred by complications arising from President Donald Trump’s tariffs, which have introduced significant challenges into the traditional negotiation process between Amazon and its suppliers.
Annual negotiations between Amazon and its suppliers have been strained, with tariffs prompting suppliers, particularly those importing from China, to reassess their business strategies. Tariffs have led to increased costs, with some products now subjected to a substantial tax of 145%. According to sources, approximately 40% of products sold on Amazon are sourced from wholesale vendors, while 60% are from third-party sellers.
Consultants representing these vendors suggest that the major driving force behind this potential shift is Amazon’s hesitance to accommodate price increases, which have become increasingly necessary with rising import costs. According to Corey Thomas, CEO of e-commerce agency AMZ Atlas, “It’s very difficult to actually pass price increases through to Amazon, and it’s been like that for years. This is that on steroids because of the tariffs.”
Reports indicate that efforts to negotiate price increases with Amazon often meet with silence or rejection. A vendor, preferring to remain anonymous, recounted their experience of submitting a cost increase more than a month ago without receiving any response. They declared to their vendor manager that they would stop accepting purchase orders for products requiring a cost increase, a move aimed at prompting Amazon to engage in negotiations.
Amazon’s counter-proposals typically come with conditions, including margin guarantees, which obligate vendors to cover any shortfalls should margins drop below a predetermined threshold. Matt Daubenspeck, director of Apothecary Products, explained, “They’ll say, ‘We’ll accept your price increases if you can guarantee that Amazon’s margins stay whole.’” This arrangement has raised concerns among vendors regarding the financial risks they would assume.
As some suppliers contemplate becoming third-party sellers, this model offers them a degree of pricing flexibility and control over their listings, as opposed to the rigidity of selling wholesale to Amazon. Daubenspeck mentioned, “We haven’t officially started selling 3P yet, but we’ve asked what the process would be.” Vendors are increasingly exploring the transition to third-party selling due to frustrations with the current negotiation climate.
The complexities of these vendor relationships could have broader implications for Amazon’s retail operations. Concerns have been raised about the potential impact on selection and pricing for customers if a significant number of wholesale suppliers were to leave the vendor programme. Former Amazon vendor manager Scott Miller highlighted that a reduction in discount levels could already be materialising, with Prime Day discounts suggested by suppliers averaging 17%, down from 30% the previous year.
While some suppliers consider alternatives beyond Amazon, such as enhancing their own direct-to-consumer channels or engaging with other retailers like Walmart and Target, the first-party to third-party transformation is viewed by some as a last resort. Daubenspeck noted that transitioning to third-party selling may not be feasible for all suppliers, particularly those with lower-priced items, as it could lead to elevated retail prices and decreased unit sales.
Despite current tensions, there have been observations of Amazon placing larger-than-usual orders to secure inventory, suggesting proactive measures in preparation for anticipated cost increases. Daubenspeck remarked, “They want to stock up on things that they think will soon be a lot more expensive.” However, this strategy also coincides with reports of cancelled orders for goods manufactured in China, leaving vendors uncertain and reluctant to invest in new inventory amid tariff concerns.
As the situation unfolds, Amazon’s CEO Andy Jassy reiterated the company’s commitment to keeping prices low for customers, which has included efforts to renegotiate supplier terms and strategic inventory management. Nevertheless, vendors are progressively feeling pressure to take immediate action, as delaying negotiations could exacerbate financial difficulties impacted by ongoing tariffs.
In summary, the evolving dynamics between Amazon and its suppliers signal a crucial juncture that could reshape how goods are sold on the platform, with significant implications for pricing, selection, and the broader retail landscape.
Source: Noah Wire Services
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