Insights

Amazon Automates Retail Operations as Third-Party Marketplace Flourishes

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Amazon is expanding automation out of the warehouse and into Seattle by replacing employees with automated inventory management. The technology is intended to enhance forecasting and ordering, reducing “out of stock” messages (too little product) and the need for clearance sales (too much product). After a Bloomberg article titled “Amazon’s Clever Machines Are Moving From the Warehouse to Headquarters” was published early yesterday morning, news outlets and e-commerce websites were quick to report on the leaps and bounds Amazon Retail is making.

On the contrary, brands and third-party sellers that choose to utilize the Amazon Marketplace, as opposed to selling wholesale to Amazon Retail, are the silent winners in this situation.

Read about the key differences between Amazon Retail and Amazon Marketplace here.

Amazon Retail is behind Amazon Marketplace

“A key turning point came in 2015 when the value of goods sold through the marketplace exceeded those sold by the retail team,” the Bloomberg article points out. This number has continued to grow since, reaching “record-breaking” sales in 2016, according to Peter Faricy, vice president for Amazon Marketplace. Brands and sellers are turning to third-party sales for a variety of reasons, including better profit margins, robust consumer data, tighter control over inventory and pricing, and the ability to accurately represent products with images, copy, and enhanced brand content. Nike’s partnership with Amazon highlights the setbacks of an Amazon Retail relationship.

Automation signals a further decline in Amazon Retail

After Marketplace surpassed Retail, investment in the program began to decline, “people familiar with the matter” tell Bloomberg. Budgets drifted away from Retail and into Alexa development and AWS. Marketplace generated twice the profit margin, while “in many international markets, the retail team has never turned a profit,” the article continues. Automation may not be the grand display of technological prowess it appears to be for Amazon Retail. Rather, it’s a necessary effort to remain profitable and efficient.