Amazon nets almost $100 billion from third party seller fees....loses it all selling its own merchandise

This is some analysis I did last week trying to evaluate the profitability of the third party fees we pay to Amazon. There are some necessary assumptions and estimates but I tried to be conservative where appropriate. Regardless of your thoughts on the FTC case, I think it’s worthwhile to consider the magnitude of the fees we collectively pay and how they’re used by Amazon to compete with us.

Isolating the Impact of Third-Party 3P Income Within Amazon’s Financials

Amazon has always been notorious of selling items cents above costs, it’s not uncommon though. Walmart and other retailers have always done it to bring in foot traffic. I think Amazon has the mentality that their loss leaders are Amazon sales and everything else they do turns the profit. Recently I noticed an item that Amazon was selling at $28 when the cost is $48… :upside_down_face:

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It’s an interesting legal issue actually. When Wal-Mart does it, it’s called subsidization - they’re subsidizing losses on one product with profits from another. With Amazon, it’s slightly different because we’re technically customers of a service they provide. Therefore, what Amazon is subsidizing is losses on a product sold to one set of customers with profits on fees charged to another set of customers - the third party seller. It has the market effect of forcing us to price and sell our items substantially higher than we might otherwise. The Fair Pricing Policy forces prices up off of Amazon, so that Amazon prices appear to be market prices - one of the main FTC complaints. The problem with subsidization between customers in this particular case is that it creates two types of markets: one in which prices are too low (predatory pricing) and one in which prices are too high (price gouging). Finally, Amazon takes advantage of the pricing disparity in the ways that it competes with the third party sellers.

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YOUR cost is $48.

Amazon most definitely negotiated a better price. I have noticed this too though, where Amazon’s price is lower than the wholesale price available to the common folk. Though many of their products are basically sold at cost, so they spend money on fulfillment which makes it a net loss.

Also, we’re “selling partners” not “customers.”

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1 I don’t appreciate that, and 2 I have been long time friends with many of the CEO’s/Presidents of the vendors I deal with, so this is not true for a special price. If it were a closeout or an import with a little of the top for the vendor I would understand. That is not the case for the item I am referencing.

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I think the core issue here is that there are more assertions and opinions and little facts/evidence. Nobody can slap an invoice on the table and say “read this Amazon net net net price”. There are still a lot of estimates and assumptions being thrown around in these threads, which is why I tell everyone to wait for the FTC to drop it’s case data.

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The are no special prices but there is “soft money” deduct from invoice amounts for “advertising”, “sales promotions” and similar value provided by the retailer.

They need not be offered to any other retailer, information on them is usually restricted,

A common tool is MDF - market development funds. Friendly CEOs rarely share the amount of MDF provided to their other customers or the terms. If you are receiving MDF it is likely that your deal is unique and differs from some other customers.

A common complaint of Amazon vendors has been the amount of MDF they have to provide. This echos past complaints of Walmart vendors.

It is legal, and should the FTC claim it is not, that will just weaken their chances of prevailing.

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With the estimate that 63% of 3P sellers on Amazon are Chinese, I wonder how AGL and the associated import fees and logistics costs for them come into play with the numbers.
One could assert that the margins from FBA can come from AGL or equivalent services therefore subsidizing the rest of us… (i say that in jest as an example of making unverifyable assumptions)

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Well, when I say “common folk” I basically mean everyone except amazon, walmart, and maybe the targets of the world.

Maybe that case is an exception, where they really are taking a huge loss per unit, but in most cases Amazon’s getting deals that nobody else gets and very few people inside the manufacturer even know those deals.

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As a former vendor I can back this assertion up. Like dealing with the government/GSA, Amazon demands that they are the lowest priced vendor and will require evidence of such.

It was a poor choice of words in a reply to others. Please pay more attention to crafting replies to individuals compared to general assertions or broad statements.

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The practice of selling at cost or even 1 cent above is not something new or limited to Amazon or Walmart.

As far back as our retail experience goes (1970’s and forward), grocery stores have done this with items. Best Food Mayonnaise was a prime example as it was always sold at cost or a penny more. This was done as a lost leader and to get people to recognize the store as a low price leader. Then the store would put the house brand right next to the Best Food Mayonnaise at a low price. The house brand (even at the lower price) generally had a 30 to 40 percent markup. The store didn’t have to sell much of the house brand to make up using Best Food Mayonnaise as a lost leader.

Placement on grocery shelves often depended on a brand’s willingness to pay for shelf position or negotiate a favorable wholesale price to gain shelf position.

Each grocery store’s size and volume would influence the overall pricing and national brands’ willingness to engage.

Online retail tends to expose these type of practices which have been common in retail for a long time but not as widely viewable by the consumer and smaller retailer as they are now.

Walmart, Sams, Costco and other big box stores were once called small business killers. And yet, when you have one pop up in an area, the surrounding area will boom with new businesses in their shopping centers. These new businesses complement their big box draws and tend not to complete with them.

Exactly … and has been in use for decades …

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Back 20 years ago, when I was much (much, much, much) bigger, I was “required” to buy out the product of a vendor whose space I was replacing. Cost me $50k. Grocery chain was HEBS out of Texas

The power of the buyers are incredible, but if you have that leverage, wouldn’t anyone use it?

and unfortunately, those buyers could drop you like a dime. One day $250k/annual sales - next ZERO.

Retail is brutal

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I struck up a special deal with my primary manufacturer and get it cheaper then the rest. Kept me on top of sales for the last 8 years…it’s amazing what 10% can do for you as long as the other sellers don’t know how I make a profit…

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