The Wall Street Journal this morning reports that Amazon, having identified some items as CRaP - for “Can’t Realize a Profit” - is having “second thoughts” about how it sells such items and is pushing suppliers to make changes in their offerings.
The products in question, the Journal writes, “tend to be priced at $15 or less, are sold directly by Amazon, and are heavy or bulky and therefore costly to ship - characteristics that make for thin or nonexistent margins… . In recent months, it has been eliminating unprofitable items and pressing manufacturers to change their packaging to better sell online, according to brands that sell on Amazon and consultants who work with them.”
An example cited by the Journal: “Amazon used to have a $6.99 six-pack of Smartwater as the default order on some of its Dash buttons, a small device that allows for automatic reordering with a single press. But in August, after working with Coca-Cola to change how it ships and sells the water, Amazon notified Dash customers it was changing that default item to a 24-pack for $37.20. That raised the price per bottle to $1.55 from $1.17. And Coca-Cola will start shipping those orders directly to consumers, sparing Amazon the expense of shipping from its warehouses.”
The story goes on to say that the Amazon Marketplace, which gives third party sellers a platform, gives it the ability to trim its own item offerings while maintaining its reputation as the “everything store” - even if it doesn’t sell something itself, the odds are pretty good that someone else will on its site, and it gets a 15 percent cut of the sale.
It is all part of a new fiscal discipline that has contributed to growing profit numbers at Amazon in recent years.
The products in question, the Journal writes, “tend to be priced at $15 or less, are sold directly by Amazon, and are heavy or bulky and therefore costly to ship - characteristics that make for thin or nonexistent margins… . In recent months, it has been eliminating unprofitable items and pressing manufacturers to change their packaging to better sell online, according to brands that sell on Amazon and consultants who work with them.”
An example cited by the Journal: “Amazon used to have a $6.99 six-pack of Smartwater as the default order on some of its Dash buttons, a small device that allows for automatic reordering with a single press. But in August, after working with Coca-Cola to change how it ships and sells the water, Amazon notified Dash customers it was changing that default item to a 24-pack for $37.20. That raised the price per bottle to $1.55 from $1.17. And Coca-Cola will start shipping those orders directly to consumers, sparing Amazon the expense of shipping from its warehouses.”
The story goes on to say that the Amazon Marketplace, which gives third party sellers a platform, gives it the ability to trim its own item offerings while maintaining its reputation as the “everything store” - even if it doesn’t sell something itself, the odds are pretty good that someone else will on its site, and it gets a 15 percent cut of the sale.
It is all part of a new fiscal discipline that has contributed to growing profit numbers at Amazon in recent years.
- KC's View:
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First of all, I have to say … “CRaP” is a pretty good acronym.
There’s no question that, after more than 20 years in business, Amazon is evolving in its approach. I wouldn’t call it a mature business - its “today is day one” philosophy keeps it innovating at a rate foreign to so-called mature companies - but it is in a new phase of its development.
The first thing Amazon had to do was enable a fundamental change in consumer behavior, and do so at a pace that, I think, most people would’ve thought unachievable 20 years ago. Fair to say that this has been achieved, and now it has to find ways to be more profitable … though it almost certainly will continue to invest those profits in new shopper-centric initiatives. There’s nothing fundamentally wrong with asking suppliers to provide products and packaging that are more efficient and profitable … especially because it still had the backstop of the Marketplace, which provides so much more availability.
It will be a harder tightrope to walk, I’d guess - living up to consumer expectations while also living up to its own. But it is a pretty good bet, based on history, that it will make game0-changing moves that will continue to appeal to shoppers and challenge competitors.
