Marketplace Briefing: As tariffs snarl price negotiations, some Amazon suppliers consider a shift to third-party selling

Consultants say the shift is being driven by one major issue: Amazon’s reluctance to accept price increases, even as import tariffs push up costs. For suppliers that import from China, in particular, sharing the tariff impact with Amazon is critical, as such products are now subject to a hefty 145% tax. 

It isn’t a mass exodus, but the shift marks a potential turning point for Amazon’s retail operations. The company’s two selling models — wholesale and third-party marketplace — work together to ensure Amazon offers a wide assortment of products from both major brands and independent sellers at competitive prices. In recent years, however, Amazon has leaned more heavily on its third-party marketplace, which now brings in $156 billion annually through merchant fees. At the same time, Amazon has quietly phased out many small, mom-and-pop vendor accounts as part of an effort to streamline operations and focus wholesale purchasing on major brands.

“We’re working with our broad, varied range of valued selling partners in our store to support them in adapting to the evolving environment while maintaining low prices for customers,” an Amazon spokesperson told Modern Retail in an email statement.

The spokesperson also said that Amazon regularly evaluates its relationships with vendors and sellers, and supports them through the business model that best fits their needs and benefits customers.

Stalled negotiations 

In theory, vendors can ask Amazon to pay more when their own costs rise. But multiple consultants told Modern Retail that their clients’ price increase requests have been met with either silence or outright rejection. 

“It’s very difficult to actually pass price increases through to Amazon, and it’s been like that for years,” said Corey Thomas, CEO of e-commerce agency AMZ Atlas. “This is that on steroids because of the tariffs.”

One supplier, who requested anonymity in order to speak candidly about business relationships, said they submitted a cost increase to Amazon a month ago, but they still haven’t heard back. In response, the person told their vendor manager that, “starting May 1, we’re not accepting [purchase orders] for products that need a cost increase,” in an attempt to push Amazon to negotiate. 

In cases where Amazon does agree to pay more, there’s often a catch: a margin guarantee.

Multiple sources told Modern Retail that Amazon is sometimes willing to offer price concessions, but generally only if the vendor agrees to reimburse Amazon for any shortfall if margins fall below a set threshold, even if Amazon sells the item at a lower price, as Amazon buys in bulk at an agreed-upon wholesale price from vendors and then determines the final retail price. Business Insider previously reported details regarding margin guarantees.

“They’ll say, ‘We’ll accept your price increases if you can guarantee that Amazon’s margins stay whole,’” said Matt Daubenspeck, director of Apothecary Products. “But if Amazon doesn’t raise the retail price, and the margin drops, you’re on the hook.”

The 1P-to-3P pivot

A margin guarantee could be a dealbreaker for vendors, who are now weighing whether the financial risk is worth it. The pressure is pushing some suppliers to consider becoming third-party sellers, a model where brands set their own prices, control their listings and pay Amazon a commission instead of selling wholesale. 

“We haven’t officially started selling 3P yet, but we’ve asked what the process would be,” Daubenspeck said. “If we can’t get our price increases through at all, or if margin guarantees never end, we may be forced to use more 3P.” 

Thomas agreed. “The appetite for transition services has increased tenfold in the last 120 days,” he said.

Similarly, Dan Brownsher, founder and CEO at Channel Key, an Amazon e-commerce agency that works with mid-market and enterprise brands, told Modern Retail that one of his clients is “considering some level of a shift to 3P if they can’t get cost increases through.” He added, “If you can’t run it profitably as a vendor, the path of least resistance is to look at becoming a seller on the platform, because then you have a little bit more flexibility in pricing.”

In more extreme cases, some suppliers are considering leaving Amazon entirely, with the channel becoming “far less profitable for them, and in certain cases, untenable,” Brownsher said. While these brands represent a small minority, and no one has exited yet, Brownsher said this was the first time he has heard vendors seriously discussing leaving Amazon. Some are exploring alternatives like shifting to Amazon’s third-party marketplace, investing more in their direct-to-consumer sites or expanding to other retailers such as Walmart, Target or international marketplaces.

A vendor reckoning

The dynamics unfolding in Amazon’s vendor negotiations could have ripple effects across the broader retail landscape. Prime Day, which has been extended to four days this year, may be impacted by suppliers’ unwillingness to offer deep discounts amid cost uncertainty. 

Scott Miller, a former Amazon vendor manager who now advises suppliers, recently submitted Prime Day discounts on behalf of his clients. Across his portfolio, the average discount is down to 17%, compared to 30% last year, he said. 

For Amazon, the risk is that an erosion of its first-party supplier base could reduce selection, raise prices or drive customers elsewhere. Despite the tough negotiations, vendors said they’re hopeful they have enough leverage that Amazon will share the tariff burden with them. 

“In this scenario, there are so many vendors saying they literally can’t afford to continue shipping to Amazon,” Daubenspeck said. “It takes an event like this — where Amazon risks losing a lot of vendors — for them to come to the table and offer solutions to pass the price on.”

Still, the 1P-to-3P transition is not a silver bullet. For some vendors like Apothecary, third-party selling may not be financially viable. 

“Going 3P would be the worst-case scenario, to be frank, because most of our items sell for $6 or less. 3P works best for items that are small, light and have a higher retail price,” Daubenspeck said. “If we did go to 3P, our retail prices would go up significantly, and the unit sales would go down.”

Amazon’s response

In the meantime, three sources told Modern Retail they’ve received unusually large, off-cycle orders from Amazon for inventory already in the U.S. For instance, Amazon typically orders about a one-week supply from Apothecary Products, but some recent orders were closer to three weeks, Daubenspeck said. Amazon also requested deliveries months in advance, a break from its usual cadence. 

To Daubenspeck , the unusual buying activity implies that Amazon is stocking up on goods, particularly those made in China, before prices go up. “They want to stock up on things that they think will soon be a lot more expensive,” he said. 

Many vendors have also had orders cancelled without warning for goods made in China, consultants told Modern Retail.

Amazon CEO Andy Jassy told CNBC in an interview earlier this month that the company is prioritizing keeping prices low for customers. That has included “some strategic forward inventory buys” and renegotiating terms with suppliers, he said.

For now, Amazon’s strategy also appears to be one of wait-and-see. “Amazon doesn’t want to agree to a cost increase and then be caught holding the bag instead of the brand,” Miller said. 

But many vendors say they can’t afford to wait. They’re already paying tariffs and not ordering new inventory from their own suppliers until something changes.

As Daubenspeck put it, “We have to do something because we can’t continue to pay the tariffs without passing it along.”

What I’m reading

• Some Amazon third-party sellers are scaling back or skipping Prime Day to protect their profit margins against costly tariffs, per Reuters.
• Shein and Temu’s fast and cheap U.S. deliveries come at a hidden cost: warehouse workers are being housed in the facilities where they work, often in poor conditions, according to an investigation by The Information.
• The White House criticized Amazon over reports that it planned to display tariff-related costs on product listings, calling the move a “hostile and political act,” though Amazon later said it had no such plans.

What we’ve covered

• Temu’s ‘import surcharges’ fuel outrage, leaving it more susceptible to tariff backlash than Shein
• Shein’s impressions on Google Shopping ads in the U.S. have now dwindled to zero
• The saga of one footwear company shows how hard it is to move manufacturing when ‘every brand is scrambling’