May 17, 2024

Analyse: Amazon sellers mention a risk of extinction for their businesses - a legitimate concern?

Long-time Amazon merchants are beginning to question the platform's viability as controversial new fees come into effect.

Over the past few weeks, in discussions with over 20 experienced sellers based in the United States, a recurring sentiment has emerged: this time, the situation seems different.

This "time" refers to the new series of fees imposed by Amazon. More than 60% of products sold on the platform come from small and medium-sized businesses, and Amazon already takes about 50% of each sale when handling storage and shipping.

Now, costs for these merchants are likely to increase even further due to new fees that have quickly become controversial enough to attract the attention of the Federal Trade Commission, as exclusively reported by Fortune last week. Long-time sellers are unanimous: selling on Amazon could soon become untenable.

As a result, many of them anticipate an "extinction event" for Amazon sellers. While some will adapt, many others may disappear, unable to survive in the current "climate" of the platform.

The question is which type of seller will be the first to give up:

Will it be the unaware seller, who may not foresee the impact of the new fees and risks seeing their margins erode without realizing it in time?

Or the sophisticated seller, who, aware of the changes, finds themselves trapped, unable to pass on the additional costs to their prices due to fierce competition from less experienced or China-based sellers, using cross-border supply chains to circumvent fees?

In either case, the outcome could be catastrophic.

"People will tend to undervalue and erode everyone's margins," says Bernie Thompson, an Amazon seller since 2009 and founder of the electronics brand USB Plugable. "There will be a lot of bankruptcies."

Amazon counters that its new fees are lower than those of other major order processing services, claiming that many sellers will see a decrease in average fees paid per unit sold.

"These changes allow sellers to choose where they want Amazon to handle different aspects of execution," spokeswoman Mira Dix told Fortune.

For Amazon, it's a win-win. Many sellers understand the logic behind some fees, like "inbound placement fees," but contest their implementation and variability.

Previously, sellers could ship their products to a single Amazon center, which would then handle distribution. Now, Amazon wants sellers to pay to send their inventories to multiple facilities, charging fees per item if not done.

Unit fees vary depending on the number of distribution centers used and their location. It's only at the time of shipping that the seller discovers the exact costs, further complicating the process.

One seller summed up the frustration on a forum: "Arghh, I think you need a PhD to calculate the fees."

Other fees, like those for "low inventory," exacerbate the situation, imposing penalties for insufficient stock, but also for excess stock, creating particular confusion for sellers of perishable or seasonal products.

The way to bypass these fees? Use Amazon's new warehousing service, Amazon Warehousing and Distribution (AWD). By signing up for this service, inbound placement and low inventory fees disappear almost entirely. A carrot-and-stick approach, or according to some, crumbs and hammer.

Some sellers find the AWD option acceptable, but others, especially those with oversized or perishable products, cannot use it. Additionally, those who already own warehouses or have commitments with third parties cannot easily switch to AWD.

Ultimately, these new fees represent an advantage for Amazon, allowing it to reduce costs or strengthen its control over the supply chain. For sellers, the pressure could become unbearable, leading to many dropouts. Yet, with hundreds of thousands of sellers, Amazon may not immediately feel the impact of these failures.

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