Simple Modern started 8 years ago in the Amazon marketplace.
The last 4 years, we’ve sold as an Amazon 1P vendor.
We've been surprising to learn these things about Amazon 1P:
What's 1P? It's a first-party relationship with Amazon.
Amazon buys inventory from 1P vendors at wholesale, then sells it to customers. Similar to being an in-store vendor with Target.
It's how the biggest brands can work directly with Amazon.
Now, what we've learned:
1. Cost of Selling:
Amazon 1P rolls all SKU profitability up to the account's Net PPM.
Growth is king. We've grown significantly annually and our selling costs haven't increased in 3 years.
3 years ago, our cost of selling was even but marketplace fees have skyrocketed since.
2. Amazon Will Intentionally Oversell:
Amazon oversold our best listing by 40,000 units last year!
It took months to catch up.
The biggest listings matter enough to Amazon's revenue, they'll compromise customer experience to keep selling.
3. Price Scraping Gridlock:
An omni-channel nightmare where scrapers get stuck:
Amazon deal -> Target scrapes Amazon's deal price -> Amazon deal ends -> Amazon scrapes Target's lower retail before Target scrapes Amazon's post deal retail. Doom.
This can take months to fix.
4. Amazon Funded Markdowns:
In 1P, Amazon owns the inventory.
If they have bad inventory, they'll mark down retail and eat the cost.
This rolls up into lower net PPM and Amazon might comeback for this loss later.
5. Deal Problems:
One way Amazon tries to claw back profit is requiring overfunding on deals.
If a customer gets $5 off, Amazon has required us to overfund up to $10.
This has forced us to pull way back on deals. It was a big lever for us in the marketplace.
6. Account Suspension:
Seller performance cannot suspend vendor's accounts.
Having experienced some shut downs as a seller, this is a big deal.
Vendor's ASIN's can still be suspended for high return rates.
Conclusion:
Transitioning to 1P was a huge learning curve.
The marketplace is the best option for most brands, it provides more flexibility and control.
1P has provided stability to Simple Modern and been the right place for us to scale the brand.