Amazon is rolling out new fees for businesses selling goods on its platform, aiming to enhance shipping speeds for customers and reduce associated costs. However, these changes may complicate matters for many Amazon sellers, potentially leading to price increases for consumers.
The new fees, including the “inbound placement service fee,” are viewed by some top Amazon sellers as intricate and costly. They fear that these fees, particularly when combined with others such as the upcoming charge for low-inventory levels, may necessitate significant adjustments to their business operations. Moreover, some sellers believe that these fees are intended to incentivize the utilization of Amazon’s own services, like Amazon Warehousing and Distribution (AWD), thereby exerting more control over the sellers’ supply chain.
Albert Grazi, a highly-rated Amazon seller with seven years of experience, expressed concerns about the growing challenges of selling on Amazon, noting the mounting pressure from various fees and operational complexities.
In response, an Amazon spokesperson, Mira Dix, emphasized that the new fee structure aims to align seller fees more closely with underlying costs while providing sellers with greater flexibility and transparency. Dix asserted that these changes enable Amazon to incentivize sellers to utilize its network more efficiently, thereby sharing cost savings.
As Amazon moves forward with these fee adjustments, the implications for sellers and consumers alike remain to be seen.
While Amazon asserts that “many” sellers will ultimately pay less per unit sold under the new fee structure, none of the six top sellers interviewed by Fortune share this optimism for their businesses.
Despite being widely recognized as a tech giant, with substantial investments in artificial intelligence, a thriving cloud computing business in AWS, and a ubiquitous voice assistant, Amazon’s revenue stream remains heavily reliant on the fees it charges sellers for hosting and managing their products. In fact, approximately one-quarter of Amazon’s total revenue in 2023, amounting to $140 billion, originated from these seller fees.
For small companies, leveraging Amazon’s platform offers unparalleled access to a vast customer base, enabling them to scale their businesses rapidly. However, Amazon’s recent fee adjustments suggest a desire for even greater profitability. Over the years, Amazon has steadily increased the share of sales revenue it retains from small and mid-sized merchants selling through its platform. Despite this, Amazon’s dependence on these sellers continues to grow, with their contribution to total goods sold on Amazon surpassing 60% during the final quarter of 2023, marking a significant milestone for the company.
Over the period from 2017 to 2022, Amazon’s share of revenue from these sellers has risen from approximately 40% to around 50%, according to Marketplace Pulse, an e-commerce research firm. This trend underscores Amazon’s ongoing efforts to extract a larger portion of revenue from its third-party sellers, even as their importance to the platform’s ecosystem becomes increasingly pronounced.
Feels like “10 years’ worth of increases and changes” in one shot
Amazon’s fee structure for sellers encompasses listing fees, advertising fees, and various operational fees, including warehousing, shipping, and customer service charges facilitated through Fulfillment by Amazon (FBA). While Amazon’s third-party seller business, known as the Marketplace, is alleged to be highly profitable, the exact extent of its profitability remains undisclosed by the company, according to the Federal Trade Commission.
The introduction of new fees, such as the inbound placement and low-inventory fees, targets sellers already utilizing FBA. However, Amazon aims to extend its influence further upstream in the supply chain through initiatives like Amazon Warehouse and Distribution (AWD), which seeks to replace third-party logistics companies (3PLs) that traditionally handle inventory management and distribution. Additionally, Amazon offers Amazon Global Logistics (AGL), a service facilitating transportation from overseas suppliers to US fulfillment centers.
In recent years, Amazon has restructured its US warehouse network into eight regional hubs to optimize inventory sharing, expedite delivery, and reduce transportation costs. Under the new changes, sellers unwilling to distribute their inventory across multiple Amazon fulfillment centers face additional fees per unit, ranging from 21 cents to $6, based on factors like item size, weight, and the number of fulfillment centers involved. These fees can be waived if sellers opt for AWD instead.
Albert Grazi, an Amazon seller, expresses skepticism regarding the high costs associated with Amazon’s new fee structure, believing that they outweigh the benefits. Similarly, Judah Bergman, CEO of Jool Baby, emphasizes the significant challenges posed by the rapid pace of fee increases and changes, which complicate efforts to ensure profitable selling strategies on the platform.
For sellers like Bergman, grappling with the complexity and uncertainty of Amazon’s evolving fee landscape underscores the daunting task of maintaining profitability and competitiveness in an increasingly competitive marketplace.
Sellers now get penalized for low inventory — and for too much inventory
Amazon’s fee changes extend beyond the inbound placement fees set to take effect on March 1, with additional fees slated for April 1 for sellers failing to maintain four weeks of inventory in Amazon fulfillment centers. However, sellers face a dilemma as Amazon also imposes charges for excessive inventory stored in its facilities.
Navigating this delicate balance poses a significant challenge for sellers like Judah Bergman, CEO of Jool Baby, who describes the task as “precisely threading the needle” to avoid incurring penalties for low inventory levels. Amazon’s solution to this issue is to encourage sellers to relinquish more control over their supply chain by adopting Amazon Warehouse and Distribution (AWD) in lieu of their existing relationships with third-party logistics (3PL) providers.
The push towards AWD is perceived by sellers as a strategy to incentivize greater reliance on Amazon’s services, but some remain hesitant to make the transition. Reasons vary, with concerns ranging from reluctance to cede control to Amazon to doubts about the cost-effectiveness of AWD compared to existing 3PL arrangements. Additionally, some sellers express reservations about the readiness and reliability of the AWD service.
Despite acknowledging improvements in Amazon’s marketplace policing efforts, particularly in addressing malicious practices that undermine competitors’ listings, sellers remain resigned to the power imbalance inherent in their relationship with Amazon. While some sellers, like Albert Grazi, concede to complying with Amazon’s directives and adopting AWD, others continue to grapple with the implications of these fee changes on their businesses and relationships with the e-commerce giant.