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Amazon Creates An Opening

There was a time not too long ago when Sears ruled the American retail landscape. Then Walmart took over the retailing world, before seeming to lose its dominant position to Amazon in the internet age.

The history of humanity, and of humanity’s love of shopping, has probably not come to an end. Amazon is king of the hill today, and seems to do many things well, but that does not mean it is unassailable. And its relentless push for world domination (outside protected markets like China and India) may create openings right here in the good old USA.

Amazon started by selling other people’s books, then other people’s brands. Now it wants to host those brands outright – with a catch. If it likes your brand, it may be able to buy that brand at a price of its choosing, something modest like $10,000.

There is a difference between working with Amazon and working for Amazon. To some regulators, this program will look like Amazon abusing its dominant retail platform to get a stranglehold on independent businesses’ sales channels and customer lists, and then to force them to sell their crown jewel brands at unfairly low prices.

Amazon, on the other hand, argues that its Amazon Accelerator program creates new opportunities for sellers. Independent merchants who join the opt-in program can expect marketing support and prominent display from the massive online retailer. And if Amazon chooses to buy a seller’s brand, the original seller remains Amazon’s exclusive supplier for the following two years. After that, however, Amazon can source the product elsewhere.

According to The Wall Street Journal, several sellers have joined the program since Amazon launched it last year. Amazon has not yet exercised the right to purchase any of those brands. Exactly how many brands are participating is unclear, in part because Amazon has required some merchants to sign nondisclosure agreements.

Despite the immediate advantages the program offers, the low built-in sale price means that participating sellers are essentially developing a brand for Amazon’s future use. While the contract allows the sellers to keep their intellectual property, such as patents and designs, they will have to sell the product under a different brand name elsewhere if Amazon exercises its right to buy the brand. Not only will sellers lose the momentum they have built on Amazon, but they will give up valuable rights to brand extensions – the ability to introduce new products by leveraging a respected brand name. Under these deals, Amazon gets that advantage, practically for free and with a scant 60 days’ notice to the original owner.

Unless sellers merely want to land a lot of short-term sales, this model makes no sense. The simple solution for merchants is to find other platforms to use, either in conjunction with or in place of Amazon. If Amazon isn’t your sole or primary source of sales, you are under much less pressure to accept its offer. You also face much less risk of losing access to your customers as a result.

Are you listening, Walmart? Target? Macy’s? Anybody?

How about a FedEx opening an online retail site for third-party brands and putting its distribution centers strategically close to its existing package-handling hubs? Amazon is already ramping up its competition with FedEx for delivery, even as it continues to use FedEx’s services. Turnabout would be fair play, even a measure of poetic justice.

Any of these competitors would be playing catch-up to Amazon’s customer base. But they have the advantage of not requiring shoppers, in most cases, to pay for an annual membership like the $119 Amazon Prime to qualify for the best terms. Customers go wherever they find the best combination of product, price and service. Amazon does most of these things well, sometimes very well. But it isn’t unbeatable, and it isn’t immune from the sort of corporate hubris that brought down earlier giants.

Amazon’s brand acquisition program is a threat delivered with a box of chocolates as a sweetener. It probably will make some of Amazon’s brand partners look for other suitors – ones who aren’t so relentlessly aggressive.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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