The relationship between Amazon and the brands that supply its products is currently under significant strain.
To understand what's happening, it's helpful to know the two main ways brands sell on Amazon. The first is 1P, or 'first-party', where Amazon buys products wholesale from a brand and sells them directly to consumers, much like a traditional retailer. The second is 3P, or 'third-party', where brands use Amazon's marketplace to sell directly to consumers, giving them control over pricing.
The core of the current tension lies in Amazon's push to keep its consumer-facing prices as low as possible. To achieve this, Amazon is asking its 1P wholesale suppliers to absorb rising input and logistics costs. For brands, especially those with products that have thin profit margins, this is a difficult request. In response, many are either pulling these low-margin products from Amazon's 1P channel or shifting them to the 3P marketplace, where they can set their own prices.
However, this strategic pivot is becoming more challenging. Amazon is simultaneously making the 3P route more expensive and complex. First, it recently introduced a 3.5% fuel and logistics surcharge for its FBA (Fulfillment by Amazon) service, which many 3P sellers rely on. This directly increases the cost of selling through the marketplace. Second, new, stricter rules for inventory management and barcoding are adding operational complexity and raising costs for 3P sellers.
This situation didn't arise overnight. It's the result of several long-term factors, including ongoing antitrust scrutiny from the FTC, which incentivizes Amazon to maintain its reputation as a price leader. External pressures like tariffs on imported goods have also added to the cost burden. By making both 1P and 3P channels more demanding, Amazon strengthens its negotiating position, forcing brands into a difficult choice: accept tighter wholesale terms or navigate a costlier and more complex marketplace. This leaves brands in a tight spot, carefully re-evaluating which products they can afford to sell on the world's largest online retail platform.
- 1P (First-Party): A sales model where a brand acts as a wholesale supplier to Amazon, which then sells the product to consumers.
- 3P (Third-Party): A model where a brand sells directly to consumers through Amazon's marketplace platform, controlling its own inventory and pricing.
- SKU (Stock Keeping Unit): A unique code used to identify and track a specific product, often tied to variations like size or color.