Amazon is spreading more and more across Europe. The most recent additions were the branches in Sweden and Poland, which means that the Group is now represented in 8 European countries, and it is rumored that there will soon be 10 locations, including the Czech Republic and Denmark.
With each of the new offshoots, the risk of cross border sourcing by Amazon increases for brands and Amazon vendors.
In this article, we’ll explain what exactly cross-border sourcing on Amazon means, what the implications are for your business, how to spot it, and what the best strategies are.
What is Cross Border Sourcing?
Amazon buys globally and then re-stocks the goods in the country where they are needed. This is not a problem for Amazon, because a lot of trucks travel between the individual fulfillment centers throughout Europe every day anyway. This can be quite a challenge for the vendor concerned, because in many cases the country organizations are separately operating units.
If deliveries for the German market are then purchased in Italy, for example, the Italian Amazon manager will be pleased, but the German one certainly less so.
When does Amazon cheat?
Amazon’s exact order algorithm is not publicly known, but in our experience, three points play a role:
- The “Landed Costs”, i.e. the item costs at which the goods are delivered to the Amazon FCs.
- The availability of the goods in the individual VCs
- The delivery performance of the individual countries
Cost seems to be the most important factor here. According to our calculations, a difference of just 2% is enough and Amazon no longer buys from its own country’s VendorCentral, but from neighboring countries.
What are the consequences?
On the one hand, this cross-border sourcing naturally leads to a shift in sales that deviates from real consumer behavior and can lead to incorrect decisions in sales, marketing and product planning. Second, it can put pressure on the overall pricing policy for individual country markets.
Let’s make an example:
Brand X is firmly established in Germany, very well known and sells throughout the market at stable, high prices with good margins.
In Spain, on the other hand, they are relatively unknown, aim to aggressively gain market share and therefore give their dealers deep discounts.
Amazon’s European ordering system detects and compares inventory and sourcing prices across Europe and will buy where it is cheapest to optimize its own margins and then transfer the goods from Spain to Germany.
Due to the higher margin, Amazon has greater scope for promotions and price cuts, as a result of which the selling prices throughout the market fall and thus also the margins of all other retailers of brand X. In addition, the direct sales of brand X with Amazon Germany decrease. The poorer performance is viewed negatively by Amazon, and planned sales targets are not achieved.
How do you recognize cross-border sales?
In order to detect in time that Amazon is cheating and buying goods abroad, you have to dive deep into Amazon VendorCentral.
There are two different displays in the Brand Analytics of the VendorCentral:
- Production (Manufacturing)
Switching between manufacturing and sourcing in Brand Analytics (source: screenshot Amazon).
The manufacturing view displays all data for all products manufactured by the brand, regardless of where Amazon sourced the products. In the sourcing view, on the other hand, only the values that were obtained directly via the VC are displayed.
If you compare the two values at ASIN level, it quickly becomes clear whether individual items are sourced externally.
Two pitfalls exist with this analysis:
- Not all ASINs are always correctly assigned, even with an active Amazon Brand Registry it can happen that the brand assignment does not work, then you get no manufacturer values for the ASIN and the analysis does not work.
If this is the case, you can activate the “Manufacturer View” for the affected ASINs via a case in the VC. In our experience, this works quite reliably.
- Crossborder sourcing is not always absolute. So it may well be that Amazon is buying goods from different sources at the same time, for example 100 pieces via your VC, but also 1,000 from your Spanish colleagues. This makes such extraneous references even harder to detect.
The whole thing is easier if you use tools such as AMVisor, where these external references are automatically detected and displayed graphically.
How can you prevent cross-border sourcing?
Uniform pricing strategy:
The most efficient way to prevent these cross-deliveries is through a uniform, European pricing strategy.
That’s easy to say, but it’s often difficult to enforce, especially when there are independent national companies that act as profit centers. Nevertheless, try to harmonize your Amazon prices across Europe, that’s the only way to ensure clean distribution.
Consider Amazon Europe as one customer and manage it centrally. When responsibility for all Amazon countries is in one hand, there are also fewer conflicts of interest.
If products are internationally usable, this favors crossborder sourcing. If the articles differ locally, have different EANs and SKUs, you also prevent unwanted trans-shipping.
The broader Amazon’s positioning, the more sources of supply it opens up. To prevent manufacturers and brands from becoming Amazon’s plaything, they too must think more globally, question existing sales and pricing strategies, and rethink them. This is the only way they can take advantage of Amazon’s enormous potential without going under the radar themselves.