Seller Beware: Amazon Inventory Fees on the Rise
How big is that Amazon Fees line item on your budget? If you are a seller who uses the Amazon Marketplace to sell merchandise, that number could be getting bigger. In an effort to improve inventory management and fulfillment cost efficiency, the online retailer is introducing several changes that will result in higher inventory and storage costs for some sellers.
Some of the most notable changes concern inventory management costs:
- Sellers with an inventory performance index below 350 will have limited storage and will no longer be able to buy unlimited storage. Those above the 350 threshold will continue to have unlimited storage with monthly and long-term fees.
- And from now on, sellers that are at or above their storage limits cannot send new inventory shipments to Amazon. For any seller that exceeds its storage limits in any given month, Amazon will charge $10 per cubic foot for the overage. This is in addition to the regular monthly and long-term storage fees.
These changes to Amazon Marketplace fees have been taking place all year, and the company doesn’t seem to be done yet. In April 2018, the fee for monthly storage increased by $0.05 per cubic foot. Beginning this past August, for items that sit in fulfillment centers for 365 days or longer, sellers are being charged the greater of $0.50 per unit, per month, or a long-term storage fee. And as of September 15, the long-term storage fees are now being assessed monthly, rather than biannually.
Why is inventory suddenly in the spotlight?
Previously, Amazon Marketplace sellers could pay for unlimited storage, which has resulted in unsold merchandise taking up a lot of space in the company’s warehouses, with some being stuffed to the brim. This makes it difficult to find products, which in turn slows down the fulfillment process.
Fulfillment companies make money on activity, such as the packaging of boxes and the shipping of product in and out of their facilities. Charging for inventory that doesn’t move is not as profitable as charging for activity-based services. So Amazon is looking to reduce the amount of profit lost because of stagnant inventory.
Also, the company’s fulfillment expenses are going up, due in part to the recently announced $15 per hour minimum pay rate for workers. Sellers aren’t the only ones the company is targeting to try to offset these additional expenses. For instance, the cost of Prime membership has gone up by $20 annually. Prime members make up about 48% of all Amazon users, and 48% of them say they will keep their membership despite the fee increase, according to a June 2018 survey of 1,000 Prime members by offers.com. Almost a third (32%), however, intend to cancel their membership because of the fee increase.
Amazon Marketplace is Amazon’s greatest source of sales, but, like FedEx and UPS, the company seems to be still operating a bit by trial and error as it adjusts pricing and services to adapt to the rapidly evolving ecommerce marketplace. For many retailers, Amazon is an extremely important sales channel. The challenge for Amazon is to keep increasing its profitability without alienating its seller customers.
The challenge for sellers, and one they must meet if Amazon Marketplace is to continue being a profitable channel for them, is to understand their own storage and fulfillment needs and how best to meet and manage them. Whether this be continuing to rely on Amazon, using a 3PL, or bringing it all in-house — or some combination — the hard and soft costs and benefits of each have to be weighed if sellers are to keep their margins from becoming too small.