Why Fulfillment by Amazon is Disliked by So Many Businesses

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It's the holiday sales season, and, for retail e-commerce sellers, that means the two most lucrative months of business are here.

Many turn to Fulfillment by Amazon, known as FBA, to handle the nitty gritty of online sales. The vendors send their merchandise to Amazon’s massive fulfillment centers and let the online-marketplace giant take care of the rest.

There’s no doubt that the sheer marketing power of Amazon can translate into sales. But many online sellers have a hard time reconciling Amazon’s fees, branding policies, and fulfillment problems when measured against the impact on their profits. And just in time for the holidays, Amazon’s woes with overstocked fulfillment centers are resulting in substantial fee hikes and restrictions for sellers.

FBA’s model and pricing

FBA was created to satisfy businesses that are looking to outsource the online sales and delivery of their merchandise. Sellers ship their items to Amazon’s fulfillment centers, where they are sorted and stored. Amazon then sells the items through its online marketplace, handles the packaging and delivery, and provides customer service for issues such as returns.

In exchange, Amazon charges sellers a variety of fees — for instance, monthly storage charges, membership fees, and shipping and giftwrapping fees. Amazon also takes a percentage of the total sale price, depending on the type of item being sold. That percentage fee can vary from a low of 6 percent for personal computers to a high of 45 percent for Amazon device accessories. Fees for most types of items are around 15 percent.

Amazon fees and reduced profits

How big of a bite do Amazon’s fees take from a seller’s profits? In a recent poll by the firm Webretailer, 43 percent of FBA sellers it polled listed “high fees” as one of their top concerns. Anecdotal stories posted by sellers say that after Amazon has collected its fees, there’s not much — and sometimes nothing — left for the seller, particularly when selling low-cost items.

Last holiday season, Amazon encountered a space crunch in its warehouses that caused delays in the processing of incoming merchandise. In response, this holiday season FBA has more than doubled the fee it charges for monthly storage and slightly trimmed its shipping fees.

The intent is to reduce the amount and variety of stock that sellers send to fulfillment centers, forcing them to focus on their fastest-selling items. Amazon has also instituted new fees on sellers that do not include box-content information in their shipments to fulfillment centers. About 45 percent of FBA sellers don’t fill out the forms.

Branding and personalization

Sellers who do business through FBA must work under a strict set of rules that strips away their individual branding and some of their key business decisions. One of the costliest is free shipping, which Amazon requires in certain transactions. While the free shipping offer enhances Amazon’s brand, Amazon’s not paying for it — the seller is.

Sellers also aren’t given an opportunity to put a personal touch on their packages. Seller-branded content, such as catalogs or offers, can’t be put in the Amazon-branded box.

Amazon’s free one-day delivery service in urban markets has been attractive to consumers, but it’s also earned criticism from both sellers and customers due to “red-lining” last-mile practices. An investigation earlier this year found that Amazon didn’t offer the service in certain minority neighborhoods of major urban areas such as New York, Chicago, and Dallas.

Alternatives to Amazon

Sellers looking for final-mile solutions that strengthen their customer service and their brand have alternatives to consider. One is opening a walk-in customer convenience center in key urban markets. These kinds of customer service centers — operated by a vendor — offer faster delivery options, branding opportunities, cost controls, and personalized service. They are particularly advantageous in major urban markets, where home delivery can be difficult.

Online sellers don’t have to subscribe to FBA’s onerous rules. Examine the options and see if there are alternatives that will give you better contact with your customers and more control over each sale.

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