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Amazon Explores a New Cost-Saving Path in Its Retail Business

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May. 29 2019, Published 4:09 p.m. ET

Amazon is dropping smaller wholesalers

Amazon (AMZN) is planning stop placing wholesale orders with smaller suppliers for the goods it sells itself, Bloomberg has reported, citing people familiar with the company’s shifting retail strategy. Instead, Amazon wants to limit its wholesale purchasing to major brand suppliers.

The planned wholesale purchasing shift is seen as an effort to cut costs, as Amazon will be able to reduce the sizes of the teams it has working on inventory management. The company will also be able reduce the risks associated with handling inventory, such as being stuck with unsold goods that can result in massive write-downs. In 2017, Snapchat parent Snap (SNAP) took on a nearly $40 million charge tied to unsold units of its Spectacles device.

Amazon may also be betting that wholesalers who lose its business will decide to sell directly on its marketplace, thereby increasing product selection for its shoppers, which could, in turn, make it a more valuable online shopping destination.

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Amazon’s profit more than doubled in the first quarter

Eliminating some costs could help Amazon generate more profits. Amazon’s operating costs rose 12.6% year-over-year to $55.3 billion in the first quarter. Still, the company was able to post a $3.6 billion profit in the quarter compared to a $1.6 billion profit a year ago. Alibaba (BABA), JD.com (JD), and eBay (EBAY) posted profits of $3.8 billion, $1.1 billion, and $521 million, respectively, in the first quarter. Etsy (ETSY) made a profit of $31.6 million in the first quarter. Groupon (GRPN) and Shopify (SHOP) suffered losses of $41.2 million and $24.2 million, respectively, in the quarter.

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