Amazon’s new fees on sellers are likened to a ‘kick in the gut’

(Bloomberg) — Amazon.com Inc. merchants have found themselves trapped in an economic vice.

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Earlier this year, the e-commerce giant introduced changes to the fees it charges – essentially shifting more of its operating costs to the small businesses that account for the majority of products sold on the site. To make matters worse for traders, buyers are trading lower.

In the first four months of the year, American consumers increasingly opted for the cheapest products in nearly every category, according to a report released Thursday by Adobe Inc. struggling to make money.

Duncan Freer, who sells weighted blankets and sleep masks on Amazon, expects his profit margin to drop from 20% to 8% as a result of the new fees. One of them, imposed in March, charges a fee on shipments sent to the company’s distribution centers. That will bring the cost of shipping Freer’s two pallets of products to Amazon to more than $800, four times what it cost him in October, he said. Amazon has reduced the cost of fulfilling each customer order, but Freer said this only partially offsets the new fees.

“Amazon continues to achieve more and more,” said the Chicago businessman, whose sales on the market reach around US$500,000 a year. “It’s like a kick in the gut.”

Amazon said the new rates are intended to reflect its own cost of distributing inventory in the U.S. so that more items can be delivered in just one day, which helps boost overall sales for online merchants. Some rates have actually fallen. In January, Amazon reduced commissions for low-cost apparel sellers, a move seen by merchants as an effort to mitigate competition from Chinese fast-fashion startup Shein.

“When we announced these new rate changes in December, we estimated that sellers would see, on average, an increase of $0.15 per unit sold, which is significantly lower than the average rate increases announced by other service providers service,” company spokeswoman Mira Dix said in an emailed statement. “As sellers adapt to these changes, we’ve seen the actual impact is even smaller and many more sellers are seeing a decrease in the average fees they pay to Amazon.”

Still, many merchants say Amazon is primarily benefiting from higher fees, a claim that is reflected in the company’s profits. Seller services revenue, which includes the popular Fulfillment by Amazon logistics operation, has increased at a faster rate than fulfillment expenses in each of the past seven quarters. Amazon’s seller services revenue of $34.6 billion in the period ended March 30 rose 36.5% from two years earlier, more than triple the pace of growth in its fulfillment costs. which were US$ 22.3 billion in the period.

The story continues

In last month’s earnings report, the cloud computing division’s strong performance overshadowed the growing tension between Amazon and its sellers. Amazon Web Services in the first quarter contributed more than 60% of the company’s operating income, although it represents less than 20% of revenue. But sales in the core e-commerce business grew at a slower rate than the number of units sold, another indication that consumers are watching their budgets. Amazon’s marketplace model helps the company continue to grow during a downturn by charging fees for advertising and logistics.

Antonio Bindi, a Brazilian entrepreneur who has been selling home storage and kitchen products on Amazon for five years, said the fee structure is becoming increasingly complex. Of particular concern: a fee introduced in April, charged when sellers’ stocks run low. This is in addition to previous storage fees that increase when slow-selling inventory remains in Amazon warehouses. It’s too much for his team of 20 to manage, so he’s reducing his 500-product catalog to 400 to simplify the operation.

Five years ago, he said, “Amazon was a platform that would make your business operations easier and allow you to focus on what you’re good at, like creating great products. You could simply send your products to Amazon and they would take care of everything. Now you need an entire department to handle the complexity. The costs are prohibitive.”

San Francisco salesman Neil Ayton sells books on golf yards, yoga equipment and pickleball equipment. One of his most popular products is a yoga stick that practitioners use to stretch. It was 59 inches, as long as possible to avoid higher fees. Earlier this year, he noticed that Amazon reduced the size limit and suddenly his yoga poles were an inch longer. Shipping costs for each product jumped from $10 to $26, and Ayton began losing $3 per sale. He pulled hundreds of yoga sticks from Amazon warehouses and cut a few inches off each one, but said that only minimized his losses. Now he plans to close his Amazon business.

“Amazon kind of teases you,” Ayton said. “It’s great when it’s working well, but you never know what surprise will come tomorrow.”

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