Thank you. I actually do understand how consignment works, but I truly appreciate your completeness and the time you put into explaining this to me.
I guess what gets me confused is two things -- first, I thought that the only things that Amazon didn't sell on a consignment basis were things that actually carried Amazon branding. Second, the article seems to imply something a bit different than what you're explaining here.
So, just to check my understanding, this move by Amazon won't really affect anything as far as I am concerned as a customer?
In other words, right now I avoid buying anything from Amazon that Amazon isn't fulfilling out of its warehouses because I've had truly terrible experiences with things that aren't. This change won't reduce the number of items available for purchase with that constraint?
Amazon used to retail tons of products, for two reasons:
1. Comparative ROI of different business models at different scales. When you're smaller, there's more money in being the middleman (if you can source products more cheaply through negotiation or clever sourcing, you can capture a large profit margin); and there's less money in being a logistics provider (since, without a built-up brand in the space, you have to compete on price.) Now that Amazon is huge, the scales are flipped: being the middleman and sourcing products is now more of a burden than a profit source, while running a well-known and trusted logistics provider is now a huge profit center. But this wasn't always true.
2. Bootstrapping. Consignment is a partnership built on trust. Big manufacturers won't do it with small/unknown storefronts. A retail supply-chain relationship (where the goods are—from the manufacturer's perspective—a sale, as soon as the retailer takes possession of them) is safer and lower-commitment for both parties. It's like hiring someone as a contractor instead of as an employee. Amazon ca. 1994 needed goods in their storefront, and the only way to get those goods into their storefront as a relative unknown was by buying them at wholesale, like a regular retailer.
> So, just to check my understanding, this move by Amazon won't really affect anything as far as I am concerned as a customer?
Definitely; in the long term, nothing will change. But, in the very short term, you might see a blip.
If nobody other than Amazon was selling some product on the Amazon storefront, and the manufacturer is asleep on their feet, the product's listing might pop out of existence for a few days, before the manufacturer bothers to take possession of the listing. Every manufacturer that Amazon was retailing for inevitably will re-list the products themselves (as a consigner), because Amazon is now too large to ignore as a sales channel.
Nobody has full described what's going on, so let me try. There are four categories of things sold on Amazon:
- A) Amazon house brands
- B) Amazon retail
- C) 3rd party seller, fulfilled by Amazon (FBA)
- D) 3rd party seller, fulfilled by Merchant (FBM)
Amazon house brands are the things like Amazon Basics, or a host of other brands that are owned by them even though they're not explicitly labeled as such. Retail is the traditional retail model described by last user, Amazon buys inventory from other companies and then handles sales & fulfillment. FBA is sort of the consignment model, where Amazon doesn't own the inventory but they handle fulfillment.
FBM is basically the Ebay model - Amazon is just facilitating the marketplace, taking customer payment etc, but the merchant is responsible for shipping/logistics.
They're going to scale back the number of companies they buy from for retail (B), and those companies will have to use C or D or stop selling on Amazon altogether.
Interestingly, those companies could also switch to A: offer their services as a white-label manufacturer for Amazon to produce goods in that same vertical they were previously retailing in.
I guess what gets me confused is two things -- first, I thought that the only things that Amazon didn't sell on a consignment basis were things that actually carried Amazon branding. Second, the article seems to imply something a bit different than what you're explaining here.
So, just to check my understanding, this move by Amazon won't really affect anything as far as I am concerned as a customer?
In other words, right now I avoid buying anything from Amazon that Amazon isn't fulfilling out of its warehouses because I've had truly terrible experiences with things that aren't. This change won't reduce the number of items available for purchase with that constraint?