OK, I confess that I am a total idiot, but I don't understand what you're saying here at all. It also doesn't seem to be what the article is saying.

> Smaller brands will still be fulfilled by amazon (products stored in amazon's warehouses) but the actual seller will be the product's brand.

As opposed to whose brand? Isn't this how it's worked for years already?

> This makes that brand compete with other sellers selling their products instead of selling wholesale to Amazon and Amazon having to carry the stock.

But you just said that Amazon will still be carrying the stock.

I am so very confused here.

It's about whose balance sheet the stock is on.

If Amazon buys an iPhone, and then lists it for sale on the Amazon store, that's Amazon's iPhone. If Amazon doesn't manage to sell it, Amazon has lost money. If Amazon does sell it, they capture the profit margin between the price they bought it at, and the price they sold it at. Apple, who sold Amazon the iPhone originally, has no further business relationship with the person that buys the phone from Amazon; after the initial sale, it became Amazon's phone to sell, and their customer relationship to have.

This is the traditional "retail" sales model. Amazon is only a retailer for a relatively few products—and now fewer.

For any other brand that shows up on Amazon, Amazon is acting as a Logistics-as-a-Service provider to that business. If you buy a Samsung TV on Amazon, then it's coming from an Amazon warehouse, but Amazon does not own that TV; Samsung (or someone else, maybe a retailer!) does. Samsung (or whoever) are effectively renting warehouse space from Amazon to hold their TVs for them, paying Amazon to deliver their products, etc. in the same way that a developer would pay Amazon to hold data in S3 and deliver messages over SNS. If Samsung wants that TV back, Amazon has to give it back. It's not Amazon's property. But nor did Amazon have to buy it. It's neither an asset nor a liability on their balance sheet. They possess it only in the sense that a self-storage business possesses the contents of a storage unit; or in the sense that FedEx possesses a parcel while delivering it.

This is the https://en.wikipedia.org/wiki/Consignment model of sales. The Amazon store is effectively a consignment store.

Well known examples of consignment:

• Commercial art galleries where the works are for sale. The gallery doesn't own the works; the artist is renting space to display and attempt-to-sell their work.

• Brick-and-mortar book stores. (New) book stores don't own their stock of books; the books' publishers do. The book-store-as-storefront has some limited power to declare sales, but mostly sales are "ordered" by the publisher. When a book store can't sell enough of a book, and have left-over stock that looks like it isn't going anywhere, they must nominally "return" the stock to the publisher by destroying it (i.e. by ripping off the covers, like this: https://www.reddit.com/r/whatisthisthing/comments/7mw74c/why...)

Amazon, as a consignment storefront, doesn't make money off the sale itself; nor can they set profit margins or declare sales. Instead, they make money by charging the supplier for their logistics services. In some consignment businesses, this is a simple flat pay-per-use fee; but for the Amazon store, this is taken as a cut "off the top" of the supplier's gross revenue from the products sold.

Thank you. I actually do understand how consignment works, but I truly appreciate your completeness and the time you put into explaining this to me.

I guess what gets me confused is two things -- first, I thought that the only things that Amazon didn't sell on a consignment basis were things that actually carried Amazon branding. Second, the article seems to imply something a bit different than what you're explaining here.

So, just to check my understanding, this move by Amazon won't really affect anything as far as I am concerned as a customer?

In other words, right now I avoid buying anything from Amazon that Amazon isn't fulfilling out of its warehouses because I've had truly terrible experiences with things that aren't. This change won't reduce the number of items available for purchase with that constraint?

Amazon used to retail tons of products, for two reasons:

1. Comparative ROI of different business models at different scales. When you're smaller, there's more money in being the middleman (if you can source products more cheaply through negotiation or clever sourcing, you can capture a large profit margin); and there's less money in being a logistics provider (since, without a built-up brand in the space, you have to compete on price.) Now that Amazon is huge, the scales are flipped: being the middleman and sourcing products is now more of a burden than a profit source, while running a well-known and trusted logistics provider is now a huge profit center. But this wasn't always true.

2. Bootstrapping. Consignment is a partnership built on trust. Big manufacturers won't do it with small/unknown storefronts. A retail supply-chain relationship (where the goods are—from the manufacturer's perspective—a sale, as soon as the retailer takes possession of them) is safer and lower-commitment for both parties. It's like hiring someone as a contractor instead of as an employee. Amazon ca. 1994 needed goods in their storefront, and the only way to get those goods into their storefront as a relative unknown was by buying them at wholesale, like a regular retailer.

> So, just to check my understanding, this move by Amazon won't really affect anything as far as I am concerned as a customer?

Definitely; in the long term, nothing will change. But, in the very short term, you might see a blip.

If nobody other than Amazon was selling some product on the Amazon storefront, and the manufacturer is asleep on their feet, the product's listing might pop out of existence for a few days, before the manufacturer bothers to take possession of the listing. Every manufacturer that Amazon was retailing for inevitably will re-list the products themselves (as a consigner), because Amazon is now too large to ignore as a sales channel.

Nobody has full described what's going on, so let me try. There are four categories of things sold on Amazon:

- A) Amazon house brands

- B) Amazon retail

- C) 3rd party seller, fulfilled by Amazon (FBA)

- D) 3rd party seller, fulfilled by Merchant (FBM)

Amazon house brands are the things like Amazon Basics, or a host of other brands that are owned by them even though they're not explicitly labeled as such. Retail is the traditional retail model described by last user, Amazon buys inventory from other companies and then handles sales & fulfillment. FBA is sort of the consignment model, where Amazon doesn't own the inventory but they handle fulfillment. FBM is basically the Ebay model - Amazon is just facilitating the marketplace, taking customer payment etc, but the merchant is responsible for shipping/logistics.

They're going to scale back the number of companies they buy from for retail (B), and those companies will have to use C or D or stop selling on Amazon altogether.

Interestingly, those companies could also switch to A: offer their services as a white-label manufacturer for Amazon to produce goods in that same vertical they were previously retailing in.