This time is different.
In phone and text conversations with more than 20 longtime US-based Amazon sellers over the last several weeks, that was the common refrain Fortune heard again and again: this time is different.
“This time” refers to the latest class of fees levied on sellers by Amazon. More than 60% of the goods that Amazon sells across the globe are supplied by these small and mid-sized businesses, and Amazon already takes a cut of at least 50% on average from every sale when it handles the storage and shipping of a merchant’s goods.
Now the amount that merchants fork over to Amazon is likely to grow even more thanks to a couple of additional fees that have quickly become controversial enough that the Federal Trade Commission has begun probing them, as Fortune reported exclusively last week. The consistent message that long-time, level-headed sellers are sharing with each other? Selling on Amazon may soon be untenable.
And as a result, many of these same business owners are forecasting something of an extinction event for Amazon sellers. The general category of third-party sellers won’t vanish—some hardy types and emergent breeds will always adapt and survive—but for a great many existing sellers, the view is that the climate on planet Amazon may no longer be able to support life as they’ve known it. The only question is which type of seller will be forced out of business (or at least, off of Amazon) first?
Will it be the unsophisticated seller, struggling to predict how the new variable costs will affect its business? If this seller keeps its prices low, it might not realize the damage caused to its financials until it’s too late.
Or consider the plight of the sophisticated seller, who understands what’s coming but finds itself in a bind. This seller may want to raise prices to account for Amazon’s added fees. But that might not be possible if the seller is competing against rivals keeping prices low because they’re either A. too inexperienced to understand the impact of the fees to their bottom lines, or B. based in China, and therefore utilizing Amazon cross-border supply chain services which may help them avoid the new fees.
In either scenario, things could get ugly.
“People are going to tend to underprice and just erode everyone’s margins,” said Bernie Thompson, who has been selling on Amazon since 2009 and is the founder of a top Amazon seller, the USB electronics brand Plugable. “There are going to be a bunch of bankruptcies.”
Amazon has said that the fee changes are significantly less than those announced by other major fulfillment services, and that many sellers will see a decrease in the average fees paid to Amazon per unit sold.
The fee changes “allow sellers to choose where they want to have Amazon take on different aspects of fulfillment and where they want to do the work themselves,” Amazon spokesperson Mira Dix told Fortune last week.
A win-win for Amazon
Many of the sellers who spoke to Fortune understand the rationale of at least one of the fees, known as the “inbound placement fee,” but disagree with the implementation and variability of the fees. In the past, Amazon sellers could ship a selection of their goods from their own warehouse – or one they essentially rent space in – to a single Amazon facility, and then Amazon might split up that inventory and ship to various facilities across the U.S. to get closer to Amazon customers. In these scenarios, Amazon would foot the bill to transport those goods between its own fulfillment centers.
Now, as Amazon pushes to store more goods closer to customers in more U.S. regions while cutting its own costs, Amazon wants sellers to start footing the bill themselves. Amazon will charge sellers a new “inbound placement fee” per item if the seller won’t pay to send their inventory to at least four Amazon facilities. (For smaller sellers who don’t sell enough to even split between four facilities, it means they will likely pay some type of placement fee no matter what.)
The more warehouses a seller will ship to, the lower the fee. But the per-unit fee will change depending on how many warehouses Amazon makes available to a seller and where those warehouses are located. And only when a seller goes to create a shipment and Amazon displays the fees, can the business owner figure out the cost of shipping to the various warehouses locations to try to select the least expensive option for them.
One comment from a seller on Amazon’s own seller forum captured some of the frustrations with the new complexities.
“Arghh — I think you need a phD to be able to figure out the fees.”
Some sellers are equally frustrated with a new “low inventory” fee Amazon will charge sellers if they aren’t stocking enough inventory in Amazon warehouses, especially considering Amazon also charges fees if you are storing too much stock in an Amazon facility. Substantial confusion also remains for merchants that sell goods that expire, and thus shouldn’t be stocked too long, or for those that sell seasonal items.
The catch, of course, with both of the new fees is that there is one straightforward way around them: by paying Amazon for a new-ish warehouse service called Amazon Warehousing and Distribution (AWD) to store long-term inventory. Sign up to use AWD and – voila – the inbound placement and low-inventory fees basically disappear. A pretty clear carrot-and-stick approach, as one seller called it, or a crumb-and-sledgehammer one if you are feeling less diplomatic.
Some sellers told Fortune that they feel AWD is a suitable alternative, but many types of sellers couldn’t switch to AWD even if they want to. Oversized products, for example, or products with an expiration date, can’t be stored with AWD. What’s more, some sellers already own or lease their own warehouse for long term storage, or have long term commitments with a third party logistics company that manages a storage facility for them. For them, Switching to AWD anytime soon isn’t a realistic option.
On the surface, the new fees sure seem like a win-win for Amazon — the company can offset some of its costs through new fees or gain greater control of the supply chain when sellers opt for AWD. The increasing burden on sellers may be so much that many call it quits. But with hundreds of thousands of sellers, it will take a lot of seller failures before Amazon and its shopping experience feel any pain.
As a reporter who’s been talking to Amazon sellers on a weekly basis for the past decade, I’ve never before encountered this level of outrage and despair. Many of these small and mid-sized businesses – great SMB success stories who typically aren’t afraid to praise the company – are now furious…and desperate. Will Amazon hear their pleas?
Do you have thoughts on this topic or a tip to share? Contact Jason Del Rey at jason.delrey@fortune.com, jasondelrey@protonmail.com, or through secure messaging app Signal at 917-655-4267. You can also message him on LinkedIn or at @delrey onX.
