Amazon 5% Inflation Fee
As of April 28th, Amazon has increased the FBA (Fulfillment by Amazon) chargeable fee by 5%, reflecting rising costs. This comes just prior to their worst reporting quarter for some time.
The costs of operations come against an increase in revenue and commentators are trying to understand if this is a downturn in Amazon or a sign of a bear market. Another discussion is whether Amazon is looking to fill its warehouses due to over-capacity or whether its aggressive acquisition of space is now coming into play. For example, Amazon Web Services (AWS) showed it can make more money by outsourcing to its competitors.
At the same time as the FBA hike, they announced a ‘Buy With Prime’ initiative aimed at leveraging their colossal logistics advantage to benefit online sellers on other platforms. ‘Buy With Prime’ allows website owners, for example, to fulfill all their orders via Amazon. However, increases can be seen in this instance as well, with the prices for this rising on May 9th by more than 5 percent.
Brands that utilize either FBA or Multichannel Fulfilment by Amazon will have to weigh whether this still represents good value against the market. More importantly, they will have to decide whether they want to put all of their eggs in the Amazon market basket.
There is no doubt that Amazon will save most brands money with their logistics programs. Single depot brands simply can’t compete with a customer who has gotten used to Amazon Prime. This is accentuated more in a country the size of the USA, compared to a market like the UK where other operators can match the shipping times. Across Europe, Amazon wins.
Reliance on one operator usually provides sound business practice but it does bring simplicity. Amazon has never held the trust of many though, in part due to its ulterior motives and access to customer details, buying behavior and sector activity.
It’s probable that the FBA hike is temporary and will most likely react to the market forces. Multi-Channel Fulfillment (MCF) will again be likely to follow the market to remain competitive. Many other operators are not as efficient in price monitoring so hikes may come for all providers in the coming months, just as capacity increases and prices start falling.
At Highlands, we tailor solutions to match brand and manufacturer ambitions, and whilst logistics is not a core activity, we are mindful of the best advice on channel strategy and how this plays out. We would most commonly recommend diversifying risk across all levels of the business. While the ‘Buy With Prime’ or FBA may make sense for most brands, it won’t for all.
Reach out to us to learn more.
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