Ready to pay more? If you are an Amazon seller who uses the company’s marketplace to sell merchandise, you might want to rethink your storage and inventory process. In an effort to improve inventory management and fulfillment cost efficiency, the online retailer is putting a series of initiatives in place that will result in rising costs for some sellers.
One of the most significant changes will impact inventory management costs:
- Sellers with an inventory performance index below 350 will have limited storage and can no longer pay for unlimited storage. Those above the 350 threshold will continue to have unlimited storage with monthly and long-term fees.
- And going forward, sellers cannot send new inventory shipments to Amazon until their inventory drops below their storage limits. For any seller that exceeds its storage limits in any 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 fee changes to Amazon’s marketplace have been occurring all year, with more increases likely to come. In April, the fee for monthly storage increased by $0.05 per cubic foot. As of August, a $0.50 charge per unit, per month is being applied for items that are in fulfillment centers for 365 days or longer. Or, sellers will alternatively be charged a long-term storage fee, whichever is greater. As of September 15, the company is now assessing long-term storage fees monthly, rather than twice a year.
Why All the Attention on Inventory?
Amazon Marketplace sellers were previously able to pay for unlimited storage, which meant there was a lot of unsold merchandise sitting in the company’s warehouses. With some of the warehouses filled to the brim, finding products has gotten more difficult, which slows down the fulfillment process.
Fulfillment companies in general, not just Amazon, make money when product is frequently shipped in and out of their facilities. Simply charging for inventory that doesn’t move is not as profitable as the activity costs of packaging boxes and other services.
With rising fulfillment expenses, such as the recently announced $15 per hour minimum pay rate for workers, the company is looking to make up the additional expenses elsewhere, too. For one, Amazon has raised the rate for its Prime membership by $20 annually. To many Prime members, however, this is not a deterrent, with 48% saying they will keep their membership according to a recent survey by offers.com. On the other hand, 32% of those 1,000 people surveyed said they will cancel their membership because of the fee increase.
Amazon’s marketplace now represents Amazon’s greatest source for sales, but the program has not been without its own growing pains. It appears as though Amazon is adjusting pricing and services to adapt to the fast-evolving ecommerce marketplace — just like FedEx and UPS. The company represents a hugely important sales channel for many, if not most, retailers. Amazon’s challenge is to increase its own profitability without doing so at the expense of its seller customers. It’s incumbent on sellers to understand the costs of relying on Amazon for storage and fulfillment, and to consider other options (like managing these processes in-house or with a 3PL) if margins become too small as a result of Amazon’s increases.