Amid FBA Fee Hikes, Sellers Consider Alternatives

Amazon has aggressively increased fulfillment fees over the past three years, shifting its own increased costs onto sellers.

According to ecommerce intelligence firm Marketplace Pulse, the ecommerce giant has raised fulfillment fees by over 30% since 2020. For example, in August of this year Amazon announced that between October 15 and January 14, 2023, it would charge $5.06 to fulfill items weighing one pound. In 2020, the cost for such goods was $3.48.

Not surprisingly, many sellers are seeking additional sales channels. Capterra’s 2022 Amazon Seller Survey found 99% of respondents who sell solely on Amazon plan to diversify in 2023.

2023 Fee Increases

In November, FBA initiated increases for warehouse storage fees effective January 17 and in April. Here are the specifics:

• Peak monthly storage fees will rise by 20 cents per cubic foot for non-sortable goods — bulky or oversized items.

• Off-peak storage will increase by 3 to 4 cents per cubic foot.

• Sellers who store a high cube of inventory — the total available space that is utilized, expressed as a percentage — relative to the cube of their recent weekly sales will incur a new storage utilization surcharge effective April 1, 2023.

• Amazon will increase the surcharges applied to inventory stored for 271 to 365 days, effective April 15, 2023.

• Starting April 15, 2023, Amazon will introduce aged inventory surcharges on goods stored for 180 to 270 days, excluding products in the following categories: apparel, shoes, bags, jewelry, and watches.

• Amazon will nearly double the cost of removing or disposing items from its fulfillment centers.

Impact of Increases

According to the Capterra survey:

• 36% of FBA sellers believe it is more difficult for them to succeed on Amazon than when they joined.

• Forty-eight percent of FBA small sellers say the holiday peak fulfillment fee will make them less profitable. FBA sellers with $25,000 in average monthly revenue from Amazon were likelier to say profitability would be harmed than those earning more.

• Over half of FBA users with less than two years of experience selling on Amazon said the fee would make them less profitable, versus 41% of sellers with five or more years of experience.

• In response to the fee hike, 54% of FBA sellers raised holiday prices.

• While 31% of current FBA merchants sell on other ecommerce marketplaces, nearly all said they would consider other avenues in 2023, such as Google Shopping, Facebook Marketplace, and Walmart Marketplace.

Molly Burke, the senior retail analyst at Capterra, remarked in a blog post, “By making it more expensive for sellers and consumers to participate in its marketplace, Amazon is opening the door to rivals such as Walmart, which offers similarly convenient shopping and selling experiences at a lower cost.”

Mitigating Fees

Some FBA sellers are switching to or adding Fulfillment by Merchant, whereby they handle fulfillment. However, many FBM sellers find it difficult to maintain Prime-eligible status (Seller Fulfilled Prime) — guaranteeing one or two-day delivery — by themselves.

Many sellers can only meet the delivery timeframe by paying for a third-party logistics service, but the cost of doing this may erase any savings.

Hence some sellers are migrating elsewhere.

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Choices

For many Amazon sellers, raising prices is inevitable. Consultants such as Gartner recommend that merchants be transparent with shoppers about price hikes and explain the reasons.

While Amazon will undoubtedly retain its clout in ecommerce, online sellers should not rely solely on Amazon for sales.

Some sellers may bow out. Over the past few years, many Marketplace merchants have sold their businesses to aggregators. These large companies are less affected by the fee increases than smaller businesses.

This year, however, aggregators are struggling to raise funds for acquisitions.