From The Wall Street Journal:
Amazon.com Inc. has trained people to buy everything from major appliances to daily staples online. Now it is having second thoughts about some of those sales because they don’t make money—and is pushing big brands to change how they use its site.
Inside Amazon, the items are known as CRaP, short for “Can’t Realize a Profit.” Think bottled beverages or snack foods. The products tend to be priced at $15 or less, are sold directly by Amazon, and are heavy or bulky and therefore costly to ship—characteristics that make for thin or nonexistent margins.
Now, as Amazon focuses more on its bottom line in addition to its rapid growth, it is increasingly taking aim at CRaP products, according to major brand executives and people familiar with the company’s thinking. In recent months, it has been eliminating unprofitable items and pressing manufacturers to change their packaging to better sell online, according to brands that sell on Amazon and consultants who work with them.
One example: bottled water from Coca-Cola Co.Amazon used to have a $6.99 six-pack of Smartwater as the default order on some of its Dash buttons, a small device that allows for automatic reordering with a single press. But in August, after working with Coca-Cola to change how it ships and sells the water, Amazon notified Dash customers it was changing that default item to a 24-pack for $37.20.
That raised the price per bottle to $1.55 from $1.17. And Coca-Cola will start shipping those orders directly to consumers, sparing Amazon the expense of shipping from its warehouses. Manufacturers shipping from their warehouses is something Amazon has asked more brands to do to cut its own costs.
Amazon told Coca-Cola that it was losing money on the smaller, cheaper shipments, according to people familiar with the matter.
Coca-Cola responds that it works with partners to learn together and constantly evolves its offerings.
. . . .
For big consumer brands, not being on Amazon “is not an option anymore,” said Guru Hariharan, chief executive of Boomerang Commerce, which makes e-commerce software. “They have the power; they have the shoppers.”
Amazon also has greater leeway to curb CRaP items because of the rise of independent sellers on its site. They have added hundreds of millions of items, helping ensure that Amazon’s virtual shelves are stocked with the variety shoppers expect. And those sales tend to be more profitable for Amazon, which typically collects a 15% cut plus fees for warehousing.
. . . .
Mr. Bergstein said his company has developed new product formats that are more profitable to sell online—on Amazon or elsewhere. Amazon is “really clear that they have a profitability threshold,” he said. “We’ve been clear about saying, ‘Let’s make sure what we’re selling is profitable, and we’re not just lining Amazon’s pockets.’”
That has meant selling smaller, lighter laundry products like detergent pods and skipping cheaper paper towels. Instead of promoting a three-pack of dish soap, Seventh Generation recently started advertising a 6-pack for $17.70, and it created a larger, 504-count package of baby wipes for $19.91 for sale on Amazon and elsewhere.
Link to the rest at The Wall Street Journal
As PG has noted previously, ebooks are an ideal online product for Amazon with extremely low storage and delivery costs.
PG suspects the same could be said for ebooks and traditional publishers although, unlike Amazon, publishers share far less of the money they receive from ebook sales with authors than Amazon does.
Of course, traditional publishers opted to fight with Amazon instead of embrace it as a marvelous way of increasing sales without increasing publisher overhead. They bet their money on Barnes & Noble instead.
While PG is rolling, he’ll briefly address an apparently evergreen story that pops up among various traditional and nontraditional media outlets: Amazon’s warehouse workers.
PG speculates that none of the authors of those articles have ever worked in a warehouse.
By virtue of a summer job during his college years, PG can claim familiarity with warehouse work. It was hard work that involved lugging semi-heavy objects (30-60 pounds) around all day. The surroundings were much dirtier than Amazon’s warehouses, if contemporary photos are accurate. Climate control at PG’s warehouse job consisted of opening a bunch of doors to allow air to circulate at ambient temperatures.
PG expects that if he went on an inspection tour of today’s warehouses, he would find a great many that hadn’t changed much since his college days.
Way back when, PG earned minimum wage. A lot of warehouse workers still earn minimum wage.
In virtually every way, Amazon treats its warehouse workers better than warehouse workers are treated by other American businesses, small or large. Amazon workers earn more than minimum wage. Amazon provides medical insurance. Amazon provides opportunities for promotion. Amazon will pay for further education of its warehouse employees, whether the education is in a field that benefits Amazon or not.
So why are Amazon warehouse stories such an evergreen topic?
Amazon doesn’t want labor unions in its warehouses. For reasons that are not difficult to discern, Amazon believes that unionized employees will not increase productivity at its warehouses. In the US, the number of workers working under union contracts peaked in 1980 and has been declining ever since.
Again in the US, companies with unionized workforces are overwhelmingly operating in old-time bricks and mortar industries. Virtually none of the technology companies that have driven so much economic growth in the US for the last 20 years are unionized.
A common tactic of US labor unions when they’re trying to pressure an employer into agreeing to unionize its employees is to spread horror stories about the working conditions inside of the target employer. The bad PR is supposed to pressure the company into agreeing to permit labor unions into its business. Whether the horror stories are true or not is beside the point.
Amazon presently employs more than 600,000 people. Not all of those people are happy every day. Not all of those people love their jobs. PG gently suggests that unionized Amazon warehouses won’t change that.