May 28, 2019 - Technology

Amazon reportedly prepares purge of small suppliers

A bird's eye view of a warehouse with packages stacked high

An Amazon's fulfillment center in Baltimore. Photo: Erica Pandey/Axios

In yet another win for bigness and big companies, Amazon may be leaving the small suppliers who rely on its platform in the dust.

What's happening: Amazon is culling its supplier list, getting rid of small players in favor of big brands and conglomerates like Procter & Gamble, Sony and Lego, which offer wholesale prices, reports Bloomberg.

Why it matters: With the rise of supercenters like Walmart in the 20th century, smaller manufacturers and businesses were effectively banished from main streets. Now, Amazon, which has already been grabbing market share, may purge them from the web, too.

  • "Efficiency and profitability are the issues here," says James Thomson, a former Amazon executive who now consults for sellers on the platform. Amazon is trying to slash away costs in its retail business and working with primarily major suppliers will help the company do that.
  • For example, when it comes to products affected by the trade war, conglomerates with deep pockets have options, including shifting production out of China, to keep tariffs from turning into price hikes. Smaller suppliers can't do the same.
  • Amazon reportedly told some smaller suppliers that it will only pay 5% more to buy products that are tariffed 25%, per the Washington Post.

Small companies still have the option of selling directly on Amazon's website, but hunting for individual customers amid an ocean of products and users is much messier than selling in bulk to the behemoth, Bloomberg notes.

  • On top of that, Amazon has increased the cut it takes from merchants per sale since it first opened up its platform to third-party sellers.

In a statement to Axios, Amazon strongly disputed the Bloomberg report:

"We informed Bloomberg prior to publication of their article that their sources and story are wrong. We review our selling partner relationships on an individual basis as part of our normal course of business and any speculation of a large scale reduction of vendors is incorrect. Like any business, we make changes when we see an opportunity to provide customers with improved selection, value and convenience, and we do this thoughtfully and considerately on a case-by-case basis.”
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