Let's keep it simple and comparable, and say the traditional retailer also has 34% gross margins. In the wholesaler-retailer model, the process looks like this

Let's keep it simple and comparable, and say the traditional retailer also has 34% gross margins. In the wholesaler-retailer model, the process looks like this: Wholesalers buys item from manufacturer for, say, $0.25. They sell item to retailer for $0.50, and keep $0.25 in gross profit. Retailer sells for $0.76, for a selling margin of 34%. The $0.26 of profit the retailer gets pays for the store, staff, logistics, net profit etc. In Amazon's third party model, it looks like this: Wholesaler buys item from manufacturer for $0.25. They sell item to end-customer for $0.76. They get $0.51 of profit! But now they pay Amazon a litany of fees amounting to 34% of the price the item sold at: 34% of $0.76, or about $.26. That leaves the wholesaler with the same $0.25 of profit. The main difference in these two processes is that in the third party model, the wholesaler keeps the inventory on their books for longer, because they ship it to Amazon and then the inventory sits at Amazon (but is still owned by the wholesaler) until it sells. That means that even if they get the same profit in the end, they've employed more capital, and it gooses Amazon's return on invested capital (they don't have to own that inventory) while reducing the wholesaler's.