Tiffany Serbus-Gustaveson  0:18

Happy Wednesday already Whoa, whoa, everyone, I'm Tiffany Serbus-Gustaveson, a digital strategist with BWG Connect, and we are a network of knowledge sharing group. So we stay on top of the latest trends, challenges, whatever it is that is changing in the digital landscape. We are on track to do at least 500 of these virtual events this year due to the increase in demand to better understand everything digital. And we'll also be doing at least 100 in person small format dinners. So if you happen to be in a tier one city, feel free to shoot us an email, and we will send you an invite these dinners are typically 15 to 20 people having a specific discussion around a digital topic. And it's always an awesome time. We spend the majority of our time here talking to brands to stay on top of the different trends. So love to have a conversation with you feel free to drop me a line at Tiffany@bwgconnect.com. And we can get some time on the calendar. It's important to have these conversations because it's how do we stay on top of the latest trends challenges that are going on. And it's also where we gain our resident experts, such as the hawkers club, who's with us today, welcome you both. Anybody that we asked to teach the collective team has come highly recommended for multiple brands within our network. So if you're ever in need of any recommendations within the digital space, feel free to reach out we have a short list of the best of the best and we'd be happy to provide that information to you. We also know a lot of people are hiring right now. So do note we have a talent agency BWG Talent that we'd be happy to put you in contact with as well. So a few housekeeping items. Number one, we want this to be fun, educational, conversational. So please put those questions comments in the q&a bar. If you feel more comfortable, you can email me Tiffany@bwgconnect.com. And we will get to them. And also know this is a 30 minute session. So we will be wrapping up at the 30 minute mark. So with that we're going to rock and roll. And we're going to talk about how profitable is your vendor Central account. It seemed that The Hawkers Club had been great friends of the network. So I'm going to kick it off to you, Hannah. And Peter, if you could introduce yourselves. That'd be great. And then we will dive right in. Thank you. Sure.

Hannah Blackburn  2:20

So thank you for the introduction. We started our agency about six years ago now we're both ex-Amazonians. I was responsible for all the distributors in ink and printer cartridges for Amazon London. And Peter was a transport for Amazon Europe's largest direct import vendor. We loved working Amazon, I am particularly loved all the people that I met. But where it started to change for us was when Amazon started limiting the amount of time we could spend with vendors. And it was very frustrating to be sitting across the table from a vendor and thinking I really know how I can help you or it's gonna take me an hour or so to help you. But not being allowed to and being encouraged to actively just be like, Oh, that's a shame, raise a ticket. And that's when we decided to form our own agency, because we knew we could help vendors a lot more from the outside and where we can help them fit their business into Amazon and vice versa. Rather than trying to do Amazon's approach, which is just force a square peg into a round hole. We would like to do it in a more holistic way. And yeah, that's that's a brief thing about us. Peter, do you have anything to add? Um,

Peter Beke  3:35

thank you for having us, Tiffany, very much looking forward to our conversation.

Tiffany Serbus-Gustaveson  3:40

Fantastic. But I'm super excited about this because I work 10 years on an Amazon account, and the home furnishing sector before coming on board with BWG. And so as always about that idea of like the profitability. And when you're thinking about profitability in the Amazon model, it's like, oh, the Add efficiency, price increases. But what are other things outside of those that people naturally gravitate to? That could have the same or even greater impact?

Peter Beke  4:10

I think it's a great question because the there's a very high awareness around wholesale pricing and price increases being a driver of profit, and also the sort of generating greater inefficiency, again, being an important tool in the toolbox, but I'm keen to point out those are only two of the many others. And I'd almost almost like to put them aside the price increases under efficiency and talk about the rest were probably does not as high of an advance as we talk to brands these days. And when we think about the overall picture, return to a bucket and tours are the levers into three main groups. Number one that's going on determine a lot of things for your vendor Central account is what is your Amazon route to market? Right? So how does your product get from the door of the factory to the door of the customer. And very simple things here can yield great results or benefits. What we often see is, let's say you're expecting direct import views for your best selling products, but they're still turned on as active on direct fulfillment, that's, that's just going to, you know, reduce the chance of getting the VIP or reduce the quantity that's requested by the IPO. So we're gonna go into it in a bit more detail later. But the route to market is number one. Number two, perhaps a bit, oddly, very, very important, from our perspective is what is the profitability that your portfolio is creating in Amazon's eyes? How do they look at it? Because all vendors look at it from from their perspective vision. And that's very good. There's a different second perspective that we offer for consideration. Because it wasn't very much think about the revenue generators, what is the right revenue, and what's the wrong type of revenue that you're generating? You know, two examples here should be, let's say your best seller has a very high damage and returns and free replacements rate in comparison to the domestic damage allowance you have been placed with Amazon. That may sound very good during the first year. But then I think we've all been there. And Amazon's just going to come back and ask for that via terms increase, or what's happening these years, of course, not, not accepting a price increase on that product right now that that's all because there was too high portion of different types of revenue generated by the products. And so that's the sort of shorter term impact. But a bit longer term impact is also important to to note here, which is the trickle down effects of any wrong type of revenue generated. And that could be let's say, you want to eventually on board your product from domestic to direct import, and then any historic lack of profitability of the basin in Amazon size, within limit how high of a wholesale price Amazon will accept during the DI onboarding process, so you'll be limiting yourself. And so the key here how to view the second bucket is anything that that's negative is gonna create a structural weakness in your account all the time. It's basically like, you know, missing shingles on your roof, right? You don't notice it straight away, as some of us may not including myself, and then you know, eventually you just end up with a leak in the kitchen a really bad time. And then the fix is super expensive, and certainly more expensive than then, you know, how do you notice the shingles right away. So, so that's the way to think about the second bucket in terms of your portfolio's profitability and Amazon size. And then the the third group or the third bucket is the operational efficiency, which is, honestly,

Hannah Blackburn  8:21

yeah, so I know it's kind of the boring, nerdy one. But I always mentioned operational efficiency when people talk about, oh, I didn't get my price increase only to improve profitability. Because it's things that it's small tasks that they add up, and they add up over time, and they can be hundreds of dollars. So as an example, if you're going from direct fulfillment to di, what you might forget is that SIOP charges, a shipping container charges, which now stands at $2 a unit are on a vendor code level, which means that if you forget to put your site's tickets on your direct input vendor code, all of a sudden, when your first direct input, Pio comes in, and you should just be happy that you've got this operational efficiency. Amazon says, okay, $2, a unit for a couple of 100 units. And then you've got a lot of chargebacks really quickly. And that's one kind of leaky bucket, lack of profitability that I see on Amazon. That's a really easy fix. Another one is when Amazon, for example, added another digit to the ASN and then didn't tell anybody and started to charge everyone for that. It's the small things, the really irritating things that I think, in a way annoy people the most, but also can have a big impact on profitability.

Tiffany Serbus-Gustaveson  9:41

It's always in the details, isn't it? Every time so you touched on this with like, yeah, the leaky roof, which it's like, the resonates about the structure and like why that is so significant to think about your brand account within Amazon and how you structure it? And I guess, why is that so significant? And what should brands be thinking about when they're embarking on that?

Hannah Blackburn  10:09

That's a great question as well. It's so significant because the Amazon structure, how you're set up, and your routes to market, create a de facto ceiling on how profitable your account can ultimately be. So as an example, if you say this is our price, and you offer it on dropship, and you also offer the same on direct input, Amazon will never go for the direct input price, because they can take the dropship price without ever having to take the risk of buying a lot of stock. And in that way, you put a ceiling of profitability on your account, because your profitability can only ever be dropship level, unless you really want to relaunch all your essence. So we looked at it in terms of your supply chain, your vendor code, and then also your route from Factory to Customer. So do you want to do a mix of Seller Central vendor Central, depending on the dimensions of the product, the demand of the product? Or do you want to do a vendor central approach where you have some domestic supply some di supply. And a lot of that I think the biggest disconnect between what Amazon's asking vendors for and the way vendors respond is based on the different way people see vendor codes. So Amazon, but most vendors see vendor codes as this is all my vendor codes all coming from me. So it doesn't really matter how I get to the customer. It's my Amazon sees every single vendor code as a different individual store. Or is that the way I think about it, because I like food is talking about when you buying almonds, if you're going to buy them from Hudson news at the airport, you'll buy a very small serving size and you know, it's going to be more expensive. That is how Amazon treat dropship. It's convenient, and they're willing to pay for the convenience. If you buy them from Target, you're buying a few more, and you're going to eat them over time. That's what Amazon sees is the domestic stalking. But then by the time you're going to Costco, Sam's Club that is when you're expecting a discount, because you're taking the risk. What if I buy one, I don't want them What if they go off, etc. That is exactly how Amazon sees direct input. And they don't even see it. As they're all coming from the same person. They see it as individual as individual stores. And it's this that kind of getting your head around the way Amazon viewing your account, rather than the way kind of you view your account internally. So whenever you make a decision on your Amazon profitability, you should be also thinking okay, what is the cost risk ratio for Amazon? What are am I offering them here? Because that's exactly how Amazon are looking at it rather than what is X vendor offering me in general? Yeah,

Tiffany Serbus-Gustaveson  13:01

totally makes sense. Remember, questions, comments, feel free to put them in the chat q&a, or email me Tiffany@BWGconnect.com. I have a question about the hybrid model you had mentioned like, okay, in theory, you have your catalog, and you're doing some dropship. And you're embarking maybe in doing the direct importing through Amazon, where does new product launches fall in this because historically, when I was working on with a new product, you're getting momentum, and now you can do container loads, and you can negotiate better pricing with your factories because you're doing more volume because they are a heavy hitter. But where how did that traction start? Could it start through direct import? Or would you have to start via dropship? Or through FBA? Did you want to take that one?

Peter Beke  13:55

Sure. So So I think, as Hannah said, if we want to get a small arms just to try right. In that case, it's going to be hard on us earlier because it's convenient. And that's the perspective of a firm once considerations if we are trying out a new product. And maybe we are unsure about the market fit we are unsure about the price unsure about how good fit it's going to be for the customer or for Amazon. In that case, you know, direct fulfillment is the way to start if we you know create let's say a spin off of an already existing best seller and sort of a high certainty that the product is going to be the next rock star. In that case, you may want to go straight to domestic stocking or to the pallet ordering system and then eventually work work the product will work their way through the different routes to market. As you mentioned, the scale of the product grows. Hence it can create in Turning more profit wt. And hence you can actually graduate from direct fulfillment to start getting to pilot ordering them to direct import as well. And I think the step by step approach is really important too.

Hannah Blackburn  15:15

And that's when we also need to take into account the future planning of a product. So I know that it's very tempting to go with your direct your direct fulfillment offer to begin with and offer Amazon your best prices and like the traditional best foot forward, but if you then give your absolute best price on direct fulfillment, by the time Amazon says I'm buying in bulk, I want to direct input discount, you might have nothing else left to give.

Tiffany Serbus-Gustaveson  15:41

Absolutely. That I've seen that been there. Unfortunately, yeah, they're always willing to go down in price, but like going up in price, yeah, good luck. So that ties in to like the profitability you had mentioned in Amazon's eyes. And I think this is a really good thing to hone in on because myself included was always the focus on the brand side, what we're doing not thinking so much about Amazon's profitability. You want to expand more on why vendors really should hone in on that and care and what to focus on?

Peter Beke  16:18

Yeah, sure. So do I suppose the two big reasons are number one, we have to acknowledge that how much money Amazon makes or loses in some cases on your portfolio, as Hannah mentioned earlier, creates a ceiling, an almost artificial ceiling for your profitability as a brand. And if the ceiling is low, ultimately your profitability is gonna be lower as well. And the second piece is what Hannah mentioned also the the future planning. So that sort of plays into how to put the right prices on, onto onto different vendor costs of the product. So there, I think there's a really high awareness in the vendor community is everyone's taking that BPM very seriously, they know what it is and know how to control it and impact it. There, I think as a lot of us, would be deluded to talk about is just because your product has a great Neff ppm, it doesn't guarantee that Amazon's making money on it. And equally, if it's got a loan at ppm, it doesn't mean that the product is, you know, ultimately profit negative for Amazon. Because what your VM is looking at, they just don't publish it is the contribution margin or, or what Amazon called CL, which has all the backend costs added on as well, not just the terms and the and the wholesale customers perspective, but also the cost of the filament, because the damages, returns replacements customer service. And, of course, probably a less known cost element, which is the cost of carrying aged and unhealthy inventory, because they track it very, very closely as well. And so having a look at all of those elements, is what gives you a complete picture of what Amazon really thinks about your, your portfolio. And it is important to remember that it's not necessarily you know, just the wrong type or just the right type of revenue in In fact, it's more about what percent of the right type of revenue you're generating, and what percentage the wrong type of revenue generating. And their vendors also, medium to low awareness, I think is that Amazon doesn't look at it as a as a portfolio or as a brand. Or as a vendor Central account, they look at it in a SKU by SKU level. And so everything needs to make sense on a scale by SKU level. Because if you've got one Rockstar a sin, it's not going to cover up the shortfalls of the second or third best seller if they are not very profitable for Amazon, they need to make sense one by one individually. And then that's how the whole portfolio is built. And,

Tiffany Serbus-Gustaveson  19:17

again, it's like Amazon was always scary and the fact of the costs and the factories so if they're the importer of record, how how do you ease the tensions there of will they see our cost of goods? Will they see the factories that we work with? What if they go work directly with those factories? Those were always the questions that internally my team had, and fears. So I can only assume others have had that. Well how do you combat that? Is that a fear or is it made up?

Peter Beke  19:55

I would say that it certainly happened on and I'm sure we all know it some pulls off of where it happens. It's important to put those examples into perspective. And look behind the why that happened in those examples. And the reason it happens is because Amazon plans to get to a point where it just doesn't make sense for them to do business with that brand anymore. Because the brand is not evolving, they are not growing themselves to serve the customer a better way. And, and that's when Amazon will start looking for other opportunities, getting the same product from a different distributor, right? Getting the same product by a different vendor code. And the point here that I'd like to make, and really press is Amazon's giving every brand the opportunity for them to become great. And if brands declined these opportunities for one reason or another. You know, that's when often the Amazon may go after certain categories. But I do think it's, it's worth it. Anything to

Hannah Blackburn  21:05

1. And yeah, I was gonna say that a lot of the time brands say, Oh, if we're a big profitable category, Amazon is going to want part of that margin. And you know, the whole famous quote, Jeff Bezos, your margins, my opportunity. But what Amazon is actually, when they launch their own brand, or one of their new kind of white label brands, what they're doing is they're trying to fill in gaps. So I remember I was part of the white label ink cartridge launch. And when we launched it in Amazon in London, and that wasn't because of, oh, we really want to eat a part of this profitability from the big brands, it was because we were struggling to maintain, like, in stock for the customer, because you buy it from distributors, rather than from the brands direct, and they won't sell to you direct, which means that if you can't get your right distributors in line, you will be out of stock, and to be out of stock on something that Amazon deemed as an every day was just not acceptable. And that's why we try to plug in the gap. So I always say that the real way to make sure Amazon doesn't go after your market is to really own your market yourselves, really make sure you're in stock, really make sure that you're profitable, and then it's just not worth Amazon's time, they'd rather go after a market where the key brands are falling down. Okay,

Tiffany Serbus-Gustaveson  22:27

great insight. Thank you. So we have a question. And I've heard mixed responses about this, in theory with a hybrid account, can you have Seller Central and vendor central working simultaneously? Or do you have to choose one or the other?

Hannah Blackburn  22:48

Should I take that one first? Peter? Yeah, go first. Um, so that's an interesting one. I know that Peter has a lot of finance theory about that. So we'll take that in a moment. But on a actual purely practical level, you can, however, Amazon for the past 18 months has started limiting sellers, where you have a they already have a listing on vendor Central. So the key thing that you need to do if you want to have a hybrid account with a vendor and a seller central, is you always need to list on Seller Central first. Otherwise, you'll get an error pop up that says, Oh, this product is already on vendor Central. And that is kind of a drag sometimes because some people say it's easier to list on vendor Central, but it's safer to list on Seller Central first and then subsequently list on vendor Central. But I think you also have an answer, Peter. Yeah, I think

Peter Beke  23:45

the the hybrid approach service vendors interesting one, and skew by skew is the unserved there. So there are just there are certain products that are just a better fit for Seller Central. And there are certain pros that are better fit for vendor central rule of thumb, anything that you've got, you know, very high volumes going through, they tend to be better in 99% of the cases on vendor Central. Anything that let's say heavy, bulky, life says dinosaur, stuff like that they that it's a slower moving but let's say bigger pieces, you need a longer handling time. If there are any personal touches on that parts you need to paint basketball before you sell to the customer. In that case on essential usually is the better way to do so. Got it? Awesome.

Tiffany Serbus-Gustaveson  24:38

Another question here is what are your thoughts about straight pay? Why does Amazon ask for it and how can a vendor say no to it? Is it worth it? Actually, I

Hannah Blackburn  24:54

have not heard of st pay. All I can think of is that it's referring to vendors paying their own stock their own fruit. You know, have you heard of St. P? Know, if the

Peter Beke  25:09

person can expand on it, I'm happy to have a chance, which we'll come back to that. And perhaps we can expand on it.

Tiffany Serbus-Gustaveson  25:18

Does this mean if we continuously decline direct import requests for certain reasons, they will go their own way to create them?

Peter Beke  25:29

Um, I'll take that. So it depends on are there substitutes, the Amazon can channel the demand and the traffic. So in this case, let's say, if there's the same product satisfying the same customer need slightly different specifications, let's say a different color would be a great one, right? In that case, that that can just take over the traffic takeover to demand. And that's going to be fine. That basically is the same if there's a product to be discontinued. And a version 1.1 or version two is the next evolution of the of the same product. And so in that case, the way Amazon thinks is that, alright, I've got it sorted, I can satisfy these customers. So I'm good to go version 1.1, version two or, or just a different color version one.

Hannah Blackburn  26:22

And the only thing I would add that is, if you think about it, a vendor manager has between five and 10, very, very high profile brands, and then they're responsible for 200 in total. So in that coming to you for an ask, there is always a reason. So if you have a vendor manager, that's coming to you saying, Let's do direct import, let's do direct input, you have to realize that they're asking for it most likely, because they are out of stock a lot, and they're looking for a more bulk way to get stuck. Or they are not happy with their profitability for whatever reason, damages supply chain, maybe glances it up and down. So I would always think about the reason behind that before you reject them. So even if you say we just don't want to do it, and then you reject them. Definitely think, Okay, why are they asking this question? And how can we answer it without giving the solution because they're just asking for the most easy solution for them. So you can actually resolve that query without having to offer direct input.

Tiffany Serbus-Gustaveson  27:26

So we have a couple of minutes left, and I want to round it out here with looking at what can brands start achieving today versus the longer term actions?

Hannah Blackburn  27:38

Awesome. Um, so there is quite a lot low hanging fruits that I would say like, Go away today if you've never done it. So for example, there when we talk about the operations invoicing POS, this sounds silly because everyone's like, of course, we invoice. But Amazon don't like to you when you have an invoice them for PIO, you have to go away and find it. Every new account that we work with, we run a tool that we created internally to check for any invoice POS, we found everything from $2,000 to $100,000, where it's just POs that hadn't been invoiced at all the older and everyone's just kind of forgot, that happens a lot of the time with EDI connections. Because if an ASN or an EDI feed gets rejected that day, nothing then would be invoiced. The second is missing ASINs on invoices, because of Amazon's matchback tool. They will sometimes apply ASINs to invoices when that asin wasn't originally on, because when they find stock, they are actually trying to attribute it somewhere. Which means that you can end up having POs that look like you have invoice them, but you're actually missing essence from them. Again, that's another thing that you have to find because Amazon won't provide it to you. They're not going to ever come to you begging to pay you for anything. I'm sure everyone that's cool knows. And then the other thing kind of financially is around incentives. So for example, CyArk incentives, Amazon says yes, you'll get them, you actually have to raise a ticket to say this is the cya consensus I deserve and then they'll approve it. They don't automatically give it to you like they used to. So that's kind of another place where it's Oh, I say leaky bucket. And then anything around your Pio acceptances to make sure that you are either rejecting all of an acent on a Pio or you're accepting above 70 80% to avoid fines for that. Reviewing your labeling. They're the things that you can go away today and start looking at and then in the medium term, you can start looking at is every route to market we have so Amazon reach and market correct for every product is it optimized, and then in the longer term, it's where do we want to be from now? This is what a vendor manager is asking us. us what how can we make that happen in a way that suits our business rather than just in the easiest way for Amazon?

Tiffany Serbus-Gustaveson  30:08

Beautiful. Any final thoughts? Peter,

Peter Beke  30:13

I think summed it up really well. What I what I did is, you know, monitoring these three factors the route to market, your portfolio's profitability and Amazon and the operational efficiency frequently is very important because as Hannah said, it, your business evolves, almost evolves, your customer evolves, and you have to evolve with them. So you know why you need to improve, monetize these factors, monitor them and action them frequently, because ultimately, it's going to lift your ceiling, how profitable your account can be awesome. And classic.

Tiffany Serbus-Gustaveson  30:52

Hannah, Peter, thank you both for the great information and we definitely encourage a follow up call with The Hawkers Club. We'd have loved to have a call with you as well. So feel free to drop us a line you can email me directly at Tiffany@bwgconnect.com. And with that, it's a wrap. Happy Wednesday. I'll take care of stay safe and we will see you next event.