What are the risks involved in opening a Vendor account?

• Opening a Vendor account minimises some of the risks associated with incidents and the attention involved in selling to the end customer, but generates others that are directly related to the management of your account and the products you publish on it.
• If Amazon invites you to develop this business model, you will lose control over the RRP of your items and you will have to respect the procedures associated with logistics, invoicing and product to avoid penalties.

If you accept the invitation you receive from Amazon to open a Vendor account, you will become their supplier and will therefore not sell your products directly to the end customer. Once you get your items to Amazon’s logistics centres, you don’t have to worry about inventory management or shipping costs to the end customer.

However, before accepting the terms and conditions of the contract that Amazon offers you to open an account with Vendor Central, there are a few things to consider. Some of them have to do with the final sale prices of your products or with the difficulty to change transfer prices. Others rely on charges imposed by Amazon for certain failures to deliver goods to its warehouses or on Amazon’s own returns of goods.

Risks involved in opening a Vendor account

Below, we explain the most relevant ones.

Difficulty in changing the transfer price:

When you publish your products on the Vendor Central platform, you have to indicate the sale price at which you sell your goods to Amazon. Additionally, you must provide a recommended retail price (RRP).

You should be aware that once you have published the transfer prices, they are very difficult to change. Therefore, we advise you to analyse beforehand the possibility that you may need to increase them for a short or medium period of time.

Less control over the RRP of the product:

However, even if you indicate the RRP for a given item, you do not have full control over the selling price that the end customer will pay. Amazon may modify this price to give a better offer or to win the BuyBox, among other reasons.

It is Amazon’s algorithm that establishes the most competitive prices, after comparing them with those of other sales channels or with other sellers offering similar or the same items as yours. Thus, it can sometimes modify the RRP by raising or lowering it, depending also on factors such as competition or the amount of stock available in its warehouses (overstock).

Possibility of charges for non-delivery:

Amazon establishes a series of procedures and requirements that, as a Vendor, you will have to comply with in order to deliver all the required goods to its logistics warehouses.

If you fail to prepare or deliver the requested inventory, chargebacks and shortage claims (SCs) may arise. This happens, for example, if you send your products incorrectly palletised, if you send them after the deadline or if the units requested in the Amazon order do not match the units sent.

Return of goods:

Although it is true that in the Vendor mode, you do not have to worry about the management and costs derived from the returns of the end customer, you will have to respond to the product returns that you may receive from Amazon. This happens if Amazon has not been able to sell your products and the deadline you previously agreed to in the contract you signed when you opened your account has passed.

Despite the risks explained above, it is profitable to open a Vendor account on Amazon.  Don’t forget that, if you do it right, it is a great opportunity to achieve high sales volumes for your brand.

Nozama has been managing Vendor accounts for more than 10 years and we have a specialised team that will help you solve problems with chargebacks and shortage claims. If you are thinking of opening a Vendor account, do not hesitate to contact us.