Could Amazon Cost-Cutting Moves Give Us a Preview of 2023?
Could Amazon Cost-Cutting Moves Give Us a Preview of 2023?
Everyone famously heard this year that Amazon doubled the capacity in the past two years of a fulfillment network that took 20 years to build. What you may not have heard is recent news that Andy Jassy, the CEO of Amazon, is instructing employees to
QUOTE double down on frugality.
This is according to reporting from Eugene Kim at Business Insider.
This is in stark contrast to Amazon’s history which has focused much more on growth than profitability. What’s interesting about these new moves from Amazon is that the company is not typically known for this kind of behavior and employs over 150 PhD economists. This is interesting because the Federal Reserve is thought to have over 400 PhD economists, and they are running the entire US economy.
Some specific callouts from the slides include:
* Maintain cash balances and liquidity
* Adjust inventory levels to meet demand
* Reduce discretionary costs not tied to customers
* Prioritize customer experience over new initiatives
No one can predict the future here, but when one of the largest, well-funded retailers of the world is starting to prioritize cash, improving efficiencies and reducing inventory levels then it would be wise for everyone to take notice.
What does this mean for Amazon brands? I think these kinds of strategies will have an impact on first-party Amazon businesses well into next year. If you’re new to the Amazon world, first-party sales is managed through an interface called Vendor Central and consists of inventory that Amazon buys and resells on its own. Third-party sales is managed through an interface called Seller Central where each seller ships products directly to the consumer either from Amazon’s warehouses, or from its own. Amazon never takes possession of the inventory.
With respect to Amazon and how difficult the problem is, it is pretty well known at this point that the default forecasting algorithm that Amazon uses to determine how much inventory of each SKU to buy is hot garbage. If the dial is turned down on that algorithm, then purchase order volumes will decline for first-party Amazon sales.
In response to this, I recommend brands that have high exposure to Amazon first-party to do two things in response heading into the next year:
First, ensure that the cases you build for your Amazon vendor manager are better than the ones you have built in the past. Your data needs to be clear and obvious. Show them the demand will be there, and there are many examples of Amazon vendor managers changing their mind and getting approval for purchase orders they denied initially.
Second, think about preparing your supply chain infrastructure for shipping pieces, not just pallets. This is a foundational capability that you will need not just for Amazon third-party sales but also for your own direct-to-consumer offering.
