Amazon has stopped purchasing products from many of its suppliers and has instead encouraged vendors to sell directly to consumers on its marketplace.
If suppliers sell directly on Amazon's marketplace, the e-commerce giant makes more money by offloading the cost of purchasing, storing and shipping products. The company can also charge suppliers for these services and take a commission on each transaction, which is less risky than buying goods outright.
According to Bloomberg, Amazon is determined to boost profits, even if it means disrupting relationships with longtime vendors. Suppliers source products from manufacturers months in advance, forcing them to quickly shift their sales tactics if Amazon's orders don't come in.
In addition to the potential of making more money, Amazon is also pushing for suppliers to use the marketplace to help reduce overhead by using an automated self-service system that requires no input from managers, Bloomberg reports.
Still, the abrupt cancellation of orders sent a panic through vendors. At the ShopTalk retail conference, some attendees claimed that Amazon stopped submitting routine orders last week for a variety of products without explanation. Meanwhile, many are frustrated about the lack of communication with the company.
Bloomberg reports that Amazon has prioritized its marketplace in recent years. Currently, more than half of all products sold on Amazon in 2018 came from marketplace merchants, and revenue providing services to those merchants is growing at double the pace of revenue from the online store. The marketplace business is worth about $250 billion.
