For selling on the Amazon marketplace, you basically have two choices. You can either become a first-party seller (1P) and sell directly to Amazon or become a third party seller (3P) and sell to customers. Over the course of 20 years, something remarkable and strange has happened. Between the two models, surprisingly, the third party sellers have grown rapidly compared to retail. Amazon’s CEO Jeff Bezos, in his annual letter to shareholders, noted that third-party sellers have increased from a whopping 3% to 58% of the total merchandise sales. Not just that, recently, there have been many cases when vendors (1P) are switching to sellers (3P) to get more control over the selling pattern and profits.
Will This Change Anything For Beauty Category?
All the categories on Amazon have brands selling as 1P or by 3P except for Amazon Luxury Beauty and Professional Beauty. Since its launch five years ago, Amazon Luxury Beauty was a gated category, so no unauthorized sellers were allowed to sell. Amazon Professional beauty, launched this year, was too a gated category. Luxury Beauty sells prestige beauty brands you will find at departmental stores and Professional Beauty offers a great selection of products for professional stylists, barbers, and estheticians.
These categories were different from all other shopping categories, basically because they are reserved for high-end prestige brands only. Selling in this category was an invite-only and brands were able to participate to sell in Luxury Beauty and Professional Beauty categories as vendors only. But recently, very quietly, Amazon has opened the Luxury Beauty category for 3P sellers as well. This was a big move from the retail giant’s side because brands can now sell under the Luxury beauty category without becoming vendors or opting into the 1P model.
What Benefits Does It Brings For Amazon?
Being a 1P seller has its own set of advantages and disadvantages. While you can easily build customer’s trust because of Amazon’s brand name, you cannot have control over how you, as a brand, present your products to the customers. This will be completely in the hands of Amazon. This is the reason why many big beauty brands have hesitations in selling their products directly to Amazon. Not just for those brands, this was a loss for Amazon too. Because it was disappointing the customers, who wanted to buy products from those brands. But with the expansion of these categories into 3P, they are now able to sell without compromising the control over their brand image, products, pricing, or inventory.
What Benefits Does It Brings For Brands?
As discussed above, selling through the 3P model allows brands to have greater control over how they want to sell and how they want to showcase their brand image. They can send the inventory directly to the Amazon warehouse and start selling to customers rather than waiting for purchase orders from Amazon. Sellers usually have lower Amazon fees and higher margins while joining the luxury platform as the vendor required them to give away 50% to 60% of their margins. This was the primary concern big brands had while selling in Luxury Beauty & Professional Beauty categories. With these new changes, brands will happily join the platform because they would just pay the FBA (Fulfillment By Amazon) fees rather than giving up a majority of their margin.
Now when high-end categories like Luxury Beauty & Professional Beauty are ungated, it’s a win-win situation for all – Amazon and the brands. It’s a massive opportunity for huge beauty brands who were not selling under Luxury Beauty and Professional beauty brands just because they had to give up a huge chunk of their profits and they will be able to have greater control over how they want to present their brand image. Amazon, on the other hand, will be able to convince the beauty industry leaders like Sephora, Ulta and many others to sell on the luxury platform.
ADEN Branding is a Full-Service Amazon Agency that focuses only the Luxury, Professional, Indie and Retail beauty category. Management and Growth of both Vendor (1P) and Seller Central (3P) Amazon Accounts. If you have questions or need help with your Professional or Luxury Beauty Brand on Amazon – please contact us today.