Etopia

Looking ahead

Etopia’s Managing Director, Asha Bhalsod

This month Etopia’s Managing Director, Asha Bhalsod is looking at the challenges of Amazon and what’s to come in 2023

As 2022 is rapidly drawing to a close and the final sales of the year conclude, focus no doubt will shift to 2023 and beyond. 2022 has been a tough trading year and there is no doubt 2023 will be equally challenging. With the constant economic challenges and changes we’re all facing, it’s become increasingly difficult to drive profitable sales across any channel. Amongst the challenges in retail, 2023 has been challenging for Amazon too. Expectations were not met with their retail sales targets and there has been several reports of Amazon undergoing cost cutting exercises. This means Brands trading through a Vendor relationship with Amazon will be under increased pressure to increase terms in January.

The impact of the economic climate on Amazon

News of layoffs, inflation, a looming recession, rising raw material prices, and ongoing logistics pricing challenges are all factors beyond our control, yet impactful on so many levels. Manufacturers will surely want to implement a Cost Price Increase (CPI) with Amazon. And if you’ve successfully managed to implement your CPI with Amazon, you’ll know that your Vendor Manager needs to be informed, giving them 30 days’ notice. Even with this forward notice, don’t expect Amazon to start buying stock at your new price. A CPI is known to be a laborious experience; often tied to trading term negotiations. Amazon will request you to load your new CPI into Vendor Central, however, expect the “system” to reject these. Consequently, you’ll have to wrap CPI into your terms. Get ready for lengthy to-and-fro discussions with Amazon! These will take up a significant amount of your time, so make sure that you manage expectations on how Amazon processes CPI internally.

PAN EU / VSP

An ongoing strategy has been to move brands over to harmonised trading terms across Europe. It makes it easier to assess terms simultaneously across marketplaces by pooling their resources. If you’re not already part of the Pan-EU model and your business has seen significant growth on Amazon over the past 12 months, expect Amazon to press upon you to make the move. As all EU markets are different, your retail model will differ across markets, so don’t be surprised when Amazon asks for different terms across individual markets. If you don’t understand what drives Amazon’s Net Pure Product Margin (PPM), you’ll not be able to make the right decisions around which terms to drive to reach a win-win solution for both parties.

Always be aligned internally on the strategies you need to implement to drive growth across individual territories, even though the lead market is managing the relationship with Amazon. Marketplace strategies should be lined up with the individual market conditions; setting KPIs will ensure that you never treat any of your markets as an afterthought. If your account is part of the Vendor Success Programme or VSP, lean on your vendor manager; they know the negotiation process intimately. Reject agreements in time (as they often auto renew) and set time aside to counter Amazon’s demands.

Supply Chain – it’s time to do a full review

Operations in Amazon is an area that’s often overlooked. Before negotiations for 2023 begin, do a deep dive into your Amazon supply chain; this could result in reducing your cost to serve Amazon by up to 70%. PICS, Pallet Ordering, and Vendor Flex are some of the programmes available to Vendors. And a having a solid relationship with your Vendor Manager, will aid entry into these programmes. Once you’ve conducted a meticulous analysis of your current business operations, you’ll have a clear picture of what’s working and what’s not. Assess chargebacks you’ve seen throughout the year as well as the common causes. This will help you identify the most beneficial

programmes to your business. Over and above aiming to drive incremental growth, part of your Joint Business Plan with Amazon should be focused on how to improve the supply chain.

023…

Due to the current economic climate, Amazon may extend its staff layoffs into the new year. It certainly hints at the fact that Amazon might be bracing for a tougher economic downturn than we expect. It’ll be interesting to see how cutting staff will impact the number of vendors Amazon are able to service. Brands will need to recruit skilful and tenacious teams to step in and handle communications with Amazon Support. Their support services will in all likelihood be scaled down, so a certain level of grit will be needed to solve cases and get to the bottom of things.

There’s been a notable push towards automating processes in the warehouse, and the introduction of robotics has helped to reduce manual labour on repetitive tasks. With costs rising across the board, a ‘hands-off-the-wheel’ approach is a very sensible strategy to follow. Changing how warehouse space is utilised is another tactical decision from Amazon to capitalise on the benefits that fast-moving products bring.

Purchase orders have become significantly smaller. Less forward orders will be accepted in 2023, and do not be surprised if Amazon implement a real-time ordering system. Heavily reduced shipment windows will massively impact the logistics processes at brand level – a lot more orders will be going out the doors (more frequently), and if you don’t keep a close eye on orders and delivery windows, Amazon will implement penalties. Don’t forget to make allowances in your budget for reduced shipment windows as it’ll cost more if you can no longer ship in bulk.

In 2023 you’ll have to zoom out and look at all the costs to serve Amazon holistically. This includes advertising spend. Brands will have to pay (more) to play on Amazon next year! The cost per click will increase, and advertising spend will come in at a higher percentage of sales. Deeper pockets and strategic investment in advertising will be necessary. On the flip side, when investment spikes, organic sales may spike, so there may just be a positive domino effect.

Then there’s the thorny issue of profitability; bottom line is that it’ll be impacted significantly. Which in turn will have a jolting effect on trade term negotiations. It’ll be best to shift to a robust hybrid model to help navigate the possible drawbacks a singular vendor or seller approach might have.

Judging by the fact that a second Prime Day took place in October and that Black Friday started a week earlier this year, we should expect a shake-up in Amazon event formats in 2023. Innovation is always at the forefront of what Amazon does.

Final thoughts…

Shopper confidence is at an all-time low right now, and Amazon will have to work harder to sustain the traffic they historically have captured. By offering schemes like subscribe & save and buy now pay later on items over £100, it may just aid in driving conversion in the next 12 months. Since Prime subscription increased earlier this year, I expect Amazon to add a few more benefits in the new year to entice shoppers to remain on the platform. In the current economic climate, it will become crucial to keep customers sweet by driving additional value and shopper benefits across the board.

When kicking off planning for 2023, ensure your teams understand the fundamental reasons behind the profit performance of your product listings in 2022. Never accept Amazon’s first proposal and take control of the discussion by providing feedback promptly. Spending the closing months of 2022 being extra savvy and embracing the opportunities Amazon has to offer, will create an ideal segue into 2023; not to mention those dreaded Terms negotiations with Amazon!

For more information, reach out to Asha - asha@etopiaconsultancy.com

To learn more about Amazon, please feel free to reach out to me! asha@etopiaconsultancy.com