Amazon Briefing: Brands are ‘losing their minds’ over new seller fee structures

Unsurprisingly, the Amazon community has been up in arms. “I have never heard such an uproar from fellow third-party sellers,” wrote one post on LinkedIn. “This is pretty egregious,” proclaimed another. The reactions were so extreme that the FTC has reportedly begun a probe into the new program.

As such, brands that rely on agencies are scrambling to figure out what to do — and how best to adapt. Most brands and agencies agree that fees are increasing, but there’s disagreement over how large the impact will be. But many brands think that, in the long term, there may be some overall price increases as sellers rethink their margin structures and ensure they are not losing money on each item they sell.

“When we announced these new fee changes, we estimated that sellers will on average see an increase of $0.15 per unit, which is significantly less than the average fee increases announced by other fulfillment providers for two-day shipping,” wrote an Amazon spokesperson in a written statement to Modern Retail.

One of the new fees involves how third-party sellers using Fulfilled by Amazon to get their products to Amazon’s warehouses. Before, Amazon allowed merchants to transport their products into one warehouse and then Amazon itself would split up the inventory to locations around the country. Now, sellers will have to split up the inventory they have shipped in themselves or else pay a fee for each individual product.

“Now, it’s going to be extremely common to have a seller split up inventory between five locations,” said Jon Elder, CEO and founder at Black Label Advisor, an FBA consultancy that works with brands that typically bring in between seven and nine figures of annual revenue.

In his estimation, this means one thing: logistics costs are going up. Elder said, that across the board, his clients are paying 15% more on logistics costs this month due to the new placement fee.

All of the new pricing tiers for sellers sending products to warehouses are “more expensive than before,” said Abe Chomali, founder of the Amazon agency XP Strategy. What’s more, the work that’s involved in splitting up the products is costlier. “If you have goods that are in cases, you have to break those cases up,” said Chomali. “You are breaking up five pallets instead of just loading [all the products] up onto a truck.”

It’s leading to a major crisis internally that agencies are trying to handle as best they can. If Amazon is implementing new fees, what steps can a brand take to maintain its margins beyond raising the price? “A lot of sellers are really losing their minds,” Chomali said.

“The inbound placement service fee took effect on March 1, however fees will not be charged until 45 days after products are received. This means no inbound placement service fees will be charged before April 15 at the earliest, which is also when the reduced outbound fulfillment fees will go into effect for all outbound shipments, resulting in lower fees paid to Amazon for many sellers,” the Amazon spokesperson wrote. “Sellers can also reduce or avoid the inbound placement fee by sending their shipments to multiple inbound locations. In the first few weeks, we are seeing more sellers choosing the optimized inbound option resulting in more sellers with no inbound placement fee, which would mean that with this year’s changes, even more sellers will see a decrease in the average fees that they are paying to Amazon.”

But the placement fee isn’t the only headache. Beginning next week, Amazon is going to implement a low inventory fee. With this, Amazon will charge brands if their stock is lower than what the platform thinks is an adequate inventory level for 30 days of sales.

Brands are already fearful of the impact this new fee could have for a variety of reasons. For one, many merchants have found Amazon’s inventory estimates to historically be off — sometimes it take months for Amazon to confirm it received products.

Beyond that, the new fee could be a huge headache for certain types of products — namely, seasonal items or SKUs that are being discontinued. Chomali pointed to Easter candy as a prime example. Merchants that sell confections will almost certainly see a spike in demand next month. But if Amazon uses that sales data to determine what the proper 30-day inventory level should be, these brands may be penalized the months after for not filling warehouse stock to their earlier April levels.

Similarly, if a brand is sunsetting a product, it will dip below inventory levels before it’s ultimately gone. Merchants will then have to pay an additional fee on top of these items while it’s trying to get rid of stock. “You are being penalized as you sell your products out,” said Chomali.

“The low-inventory-level fee will only apply if a product’s inventory level relative to historical demand is below 28 days of inventory, and it is not based on any predicted future demand or forecasted inventory level in the future. We will help sellers manage their inventory levels by providing them with easy-to-use metrics to track their historical demand, giving them visibility and control over their inventory levels and the ability to avoid the low-inventory-level fee,” the Amazon spokesperson wrote to Modern Retail. “Additionally, the fee won’t apply in many cases where demand may be uncertain, such as for new sellers with a professional selling plan and products that are new-to-FBA and enrolled in the FBA New Selection program. The low inventory fee is charged on items that are fulfilled when the product has a low-inventory level, and so the fee will not apply to items that are out-of-stock.”

While discussion of this new fee structure has reached a fever pitch over the past few weeks — with dozens of doomsday LinkedIn posts — not everyone is sure the impact will be as grave as expected.

Fahim Naim, head of Amazon at Advantage Unified Commerce, said that he’s been fielding numerous questions from the brands it works with, many citing online posts and discussions in forums.

“It’s not as bad as people think,” said Naim, whose agency works with larger brands on their overall e-commerce strategies. Much of the furor is due to what he describes as piecemeal communication on Amazon’s part. While the e-commerce platform has implemented a new structure, it has reduced some fees in some cases.

The fees for FBA fulfillment, for example, have gone down for some brands thanks to a new tiered system that changes the weight range for products coming in. Items that weigh less than 1.5 pounds have been given a feed reduction for between $0.41 per unit to $.03 per unit. (That being said, heavier items are seeing higher fees compared to before.)

Similarly, Amazon updated its small and light program — a fulfillment category for brands that sell more lightweight products — to encompass more products. The merchants that qualify are also seeing lower rates than before, according to Naim.

Still, the new placement and low inventory fees are likely to eclipse the savings made from these other reductions. Naim has been crunching the number for the last month and has found that most brands are seeing a net fee increase of around $0.21 per unit when taking into account the new placement fee.

While that’s certainly not great news for brands, it likely won’t be catastrophic. And, Amazon has been hinting at this change for years now. The company has been focused on making more of its products available for same- or next-day shipping. And, for the most part, Amazon has been bearing the costs.

“The primary value prop Amazon is delivery speed,” Naim said. Now that it has a system in place, it’s trying to increase the number of products it can offer at this speed while keeping its own profitability in mind. And, across the board, prices have gone up. “If you look at the fees outside of Amazon, costs have risen a lot more than they have on Amazon,” Naim said. The big change now, he said, is “they’ve started to pass more of [onto to the brands].”

The real reckoning that’s on the horizon is for the brands that have treated Amazon as a set-it-and-forget-it channel. If they aren’t paying attention to their margins, they risk losing profitability completely.

“If you are going to let it be on autopilot, that’s where I think there is going to be risk of margin degradation,” said Naim. That being said, “the more sophisticated and adequately prepped brands will not have to pass off price increases.”

Black Label Advisor’s Elder agreed that it’s forcing brands to pay closer attention to their cost structures. “Brand owners are looking at ways to reduce the material costs — looking at alternative packaging [and how to make] packaging economics cheaper,” he said.

Overall, Elder said, this may usher in a new way brands think about Amazon as a channel. “Historically, [brands] are like FBA money is really easy,” he said. “Now, they really need to wake up and realize the real margins are going to be off Amazon. 2024 is going to be the year where sellers go from Amazon native to where Amazon is part of a huge pie.”

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