There will be a big adjustment to Amazon FBA fees in 2024, and these adjustments are actually to transfer more operating costs to third-party sellers. With the entry into force of warehousing configuration fees and low-volume inventory fees, a group of small and medium-sized sellers have been difficult to bear the pressure.
Amazon's new fees have led to a decline in sellers' profits
On May 10, Bloomberg published a report titled "Amazon's New Fees Will Give Sellers a "Fatal Blow", listing the current situation of many sellers after Amazon's fee adjustment, which resonated with many peers, and in the more than 200 comments that have been seen, everyone's heated discussion on this incident continues to ferment.
Duncan Freer, who sells padded blankets and sleep masks on Amazon, expects his profit margin to fall from 20 percent to 8 percent (equating to a 6 percent decline) due to the new charges. One of these fees, which was implemented in March of this year, is a tax on goods sent to Amazon's fulfillment centers. That cost him more than $800 to ship two pallets of products to Amazon, four times more than the cost in October, Freer said. Amazon has reduced the cost of fulfilling each customer order, but Freer said that will only partially offset the new fees.
Amazon is "grabbing" more and more from sellers, the Chicago Amazon seller with an annual sales of $500,000 complained, and said that the platform's approach is like a kick in the stomach of sellers.
Antonio Bindi, a Brazilian seller who has been selling home storage and kitchen products on Amazon for five years, believes Amazon's fee structure is becoming increasingly complex. Particularly worrying is the introduction of a low-volume inventory fee in April this year, which charges sellers when they run low on inventory. Previously, storage fees also increased when slow-moving inventory was stuck in Amazon warehouses. It was too difficult for his team of 20 people, so he cut down 500 products to 400 to streamline operations.
In his opinion, five years ago, Amazon was a platform that could facilitate sellers' business operations, so that sellers could focus on what they were good at, such as creating great products, sellers could send products to Amazon, and they would take care of everything. Now, sellers need an entire department to handle this complexity, and the cost is prohibitively high!
Neil Ayton, a seller in San Francisco, sells golf books, yoga gear, and pickleball gear. One of his most popular products is the yoga stick, and the length of the product is 59 inches, which is the longest length to avoid higher charges. Earlier this year, he noticed that Amazon had lowered the size limit, his yoga bar had grown an inch, and shipping costs had skyrocketed from $10 to $26 per product, and since then Ayton has lost $3 for every piece sold. He recalled hundreds of yoga sticks from Amazon warehouses, each cutting off an inch, but he did so only to minimize the damage, and now he plans to gradually scale back his Amazon business.
"Amazon is kind of like teasing you, when the business is doing well, you're ready to do it, but you never know what's going to happen tomorrow." Ayton was helpless.
The situation of several sellers also reflects the survival status of domestic Amazon sellers, especially after the warehousing configuration fee takes effect, a large number of sellers' profits have declined to varying degrees. Seller Li Tian introduced, this fee has too much impact on himself, his profit has been reduced by about half, not only himself, but also other peers, maybe everyone is different, the degree of impact is different, but it is undeniable that more than 90% of sellers will be impacted, small and medium-sized sellers like him are very worried but can't help.
There is no way to pass on operating costs to consumers
In the comment section of the report, many people expressed their opinions on the matter. One commenter bluntly said: "Amazon cracks down on sellers from all angles and raises fees, resulting in less and less profits for sellers, which is obviously trying to force sellers to shut down so that they can sell products directly." ”
"What people need to understand is that Amazon is in business to get rich, not to help suppliers or sellers get rich. At some point, the bubble will burst, and sellers will find another platform to replace Amazon. Amazon provides services, not products! A colleague said.
The more than 200 reviews seen so far and the replies below the reviews can reflect that the impact of Amazon's new fee changes on sellers cannot be ignored. The decline in the profits of some sellers in the report is also a microcosm of the entire seller ecology.
In order to boost their profits, sellers tried to increase their selling prices, but found that this move simply didn't work. For some sellers, what is worse is that profits are declining at the same time as sales are also declining.
Last Thursday, Adobe released online shopping data for the first four months of 2024 in the United States. Data shows that in the first four months of this year, U.S. consumers increasingly opted for the cheapest products in almost all categories, making it more difficult for sellers to pass on rising operating costs to consumers.
In response to this matter, an industry insider said that he was working directly with Amazon sellers, and from a logistics point of view, Amazon's recent large inbound configuration fees are justified. Essentially, previously when sellers sent inventory to FBA, they only had to pay for shipping to the initial warehouse, and then they incur those costs if Amazon deems it necessary to spread the inventory across multiple warehouses across the country. This is basically included in the fees already paid by the seller.
Now the situation is, first, when a seller sends inventory, they have the option to send the inventory to a single FBA warehouse and pay a "placement fee" that allows them to spread their inventory across the country. Second, sellers can choose multiple warehouses to ship goods and avoid warehousing placement fees.
Therefore, if the seller wants to ship the goods, they must make a choice. Save on shipping costs, consolidate all your shipments into one FBA warehouse, pay the inbound configuration fee, or pay more for shipping to multiple warehouses. Maybe it's cruel to the seller, but it's inevitable unless the seller doesn't use FBA.
Amazon is the biggest beneficiary of fee adjustments
Amazon says the new charges are intended to spread the cost of distributing inventory across the U.S. so that more items can be delivered in a day, which can help boost overall sales for sellers.
"When we announced the new fee changes in December, we estimated that sellers would increase their average unit sales by $0.15," a spokesperson for the company said in an emailed statement. As sellers adapt to these changes, we're seeing a smaller actual impact, with more sellers paying Amazon on average decreasing. "
However, many people disagree with this statement. In the view of a seller, Amazon's sales and profits skyrocketed during the epidemic, and they invested a lot of money in logistics construction. Amazon's costs exceed profits and need to be adjusted. They have taken a series of measures such as cutting costs and laying off employees in an effort to make more profits.
Sellers in the industry believe that Amazon is the biggest beneficiary of high fees, and this statement is reflected in the company's profitability. As of March 30, Amazon's net sales increased 13% year-on-year to $143.3 billion; Net income increased 328% year-on-year to $10.4 billion. Amazon's sales service revenue was $34.6 billion, up 36.5% from two years ago and more than three times the rate of cost to realize, which was $22.3 billion.
Amazon AWS sales increased by 17%, and advertising sales increased by 24%. AWS's strong performance masks the growing tensions between Amazon and sellers. Amazon's marketplace model has helped the company continue to grow even as economic growth slows by charging for advertising and logistics.
Amazon's shares rose 17% in the wake of its earnings release, with earnings suggesting a "new era" for the tech giant's profits.