Last March, there was a big disruption when Amazon didn’t place POs (purchase orders) for a large percentage of vendors. Products went out of stock, which was extremely stressful for brands. Rumors began that this was an early sign that Amazon was forcing Vendor Central brands bringing in under $10 million in shipped COGS (cost of goods sold) to Seller Central. Another rumor was that Amazon was merging the two into a new platform called “One Vendor.”
Amazon denied these claims and no one was officially forced to make the switch. But ever since, there’s been the burning question: is it better for a brand to sell on Vendor Central or Seller Central?
Vendor Central was the only way a brand could sell when Amazon first launched. Later, Seller Central was created. Historically, established brands sold on Vendor Central and smaller brands sold on Seller Central. Where are they now?
Five years ago, if you were an established brand you sold on Vendor Central. Legitimate brands had vendor contracts with Amazon, Wal-Mart, Macy’s, and other retail partners and were selling wholesale. That’s how retail was done.
Over time, Amazon became very lean in their support for vendors. One of Amazon’s leadership principles is “frugality” which for them means doing more with less. Vendor Central managers would have hundreds of brands under their management with quotas to bring on even more brands! Ultimately, it fell on the brands plate to build out and design their product detail pages, do their A+ content, and build and manage their advertising. Brands were getting the margins of a wholesale partner, but doing all the work allocating the advertising dollars.
Seller Central was where Ma & Pop brands or third party sellers sold five years ago. This is where the private label economy started. There was a stigma that if you were a brand selling on Seller Central it was because you were too small for Amazon to give you a Vendor Central contract. Within the last 3-4 years, Seller Central has added perks that were once exclusive to Vendor Central such as better marketing and product detail page design opportunities.
When you sell on Seller Central you are basing your sales number off of the retail number, which is the price you sold the product to the customer. Then, you pay Amazon a referral fee, FBA fee, storage fee, and advertising costs.
On Vendor Central, all of the sales are calculated based on shipped COGS. Instead of the retail number you are looking at the price you sold your inventory to Amazon. Brands go into agreements with Vendor Central and Amazon tells you what they will pay you for your product. On top of that, they take a co-op fee (6%-8%), freight fee ranging from 2%-8% depending on product size and weight, and damage fee (1%-2%), which is all deducted from the wholesale price paid.
Examples From Our Clients
Envision Horizons has always been a Seller Central first business.
We have successfully moved clients from Vendor to Seller over the years and found that due to the nimble nature of Seller Central we can grow brands significantly faster on Seller Central so long as there are no major buy box issues.
The typical process of migration includes setting up the brands Seller Central account, sending product into Amazon fulfillment and then waiting for Vendor Central to run out of inventory. For one client, even though there was a 2-month transition period, both sales and margin were up 30% after making the switch.
Another client we switched from Vendor Central to Seller Central had similar success. Their margins are less on Seller Central because they have low priced items, but their business as a whole has grown significantly faster because they can be more nimble. For example, images are live in 15 minutes on Seller Central. On Vendor Central, it could take 3-5 business days to find out if images are approved and up to 2 weeks for the images to be live.
We run some clients on a hybrid model. Products under $10 are sold on Vendor Central because there is a better margin. New products are launched on Seller Central and then get a higher cost price from Amazon. If it’s a proven product, you have more leverage to negotiate.
Some brands are in contract with Vendor Central and unhappy with the partnership due to inconsistent POs and no control over pricing. What do they have to do? Sell wholesale to third party-sellers who promise to oblige to the pricing agreements vs. being able to sell directly to the consumer.
In our opinion, there are no major benefits for a brand to sell on Vendor Central unless you have a really good contract and you sell inexpensive products. In most cases, brands are going to see a stronger margin on Seller Central than Vendor Central.
Majority of retail revenue is coming from products sold via Seller Central. Vendor Central isn’t the star player but it is the legacy player. The sibling rivalry under the Amazon umbrella continues.