Amazon’s Prime Selection is About to Get Much Bigger

NEW YORK (TheStreet) -- Amazon (AMZN) is reportedly adapting its Prime policy to let more third party sellers onto the platform and increase the number of products available for Prime members.

The policy changes were first reported by Re/Code, and have been confirmed to us by multiple sources familiar with the changes. Amazon has been beta testing the program with select third party sellers.

Amazon could not be immediately reached for comment.

Until now, Amazon has made only about 10% of its products Prime eligible, allowing only products that were stored in Amazon warehouses to be "Prime'd," as the company calls it internally. Because Prime-eligible products have to be shipped within two days, it was difficult for third party sellers to meet this demand on their own, so they could either store inventory with Amazon or forfeit Prime eligibility.

But now things are changing, with Amazon loosening the reins a bit. Sellers will still be required to meet the two-day shipping requirement, but they will be able to do so on their own without storing in Amazon warehouses.

The sellers are responsible for any extra cost it takes to expedite shipping, though they will have access to Amazon shipping rates, which are lower than the standard. In addition, the sellers will have the option to sell to specific zip codes which are more cost effective to them, according to one seller who is part of the beta program.

And even if sellers are forced to shell out some extra shipping costs, they are also entering an ecosystem that will likely pay off, according to ChannelAdvisor Executive Chairman Scot Wingo.

ChannelAdvisor, which helps sellers sell on online marketplaces, has witnessed increases in sales of 20-50% when sellers are Prime'd. Prime members spend two to three times as much as non-Prime members, according to Wingo, so access to that userbase is invaluable.

"There will be some calculus there," Wingo said. "It's going to cost me a little more, but I'll sell 50% more so I'll probably make more margin."

For Amazon's part, the benefit is clear. Prime, which costs $99-a-year, has been a huge focus for the company as it recognizes that these are valuable customers that are purchasing more on Amazon than non-Prime members. By increasing the selection for Prime members, Amazon increases the likelihood they'll spend even more.

Amazon has never publicly disclosed exactly how many Prime members it has, but it has confirmed publicly it has more than 20 million members across the globe.

Amazon can only sell so much on its own, and it is increasingly relying on third-party sellers. In the company's first quarter earnings call, CFO Tom Szkutak said that sales from third-party sellers accounted for 44% of total unit sales for Amazon, up from 40% in 2014.

The main challenge will be maintaining control of shipping quality, Needham & Co analyst Kerry Rice said. If Amazon isn't storing all Prime inventory, it runs the risk of deliveries taking longer than two days and upsetting Prime members.

"Internally at Amazon they call that the 'Prime promise,'" Wingo said. "And they regard that religiously. They'll have lots of protection around that Prime Promise, so if [a seller is] not reaching that I imagine they'd be out of the program."

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