As we all know, Amazon is the juggernaut of ecommerce. Many sellers not only sell on the platform, they also use Amazon FBA (Fulfillment by Amazon). But Amazon FBA changes, both regulatory and monetarily, are affecting sellers…and not in a good way.
What is Amazon FBA?
In this day and age, any seller worth their salt is on Amazon. When asked about where online consumers start shopping, 63% said they start their search for products on Amazon. It’s a crucial, trusted platform; easily the world’s largest online retailer, Amazon has 6.4 million total sellers worldwide. Amazon is the ecommerce hub of the century. If you intend to sell products online, it’s imperative your products are available on Amazon.
One of the reasons consumers prefer Amazon is because of the famous expectations for free, two-day shipping. In this digital day and age, consumers have come to expect near instantaneous results. Unfortunately, as an SMB it can be difficult to process orders with the speed and efficiency of a global shipping empire. When left to your own devices, it can be intimidating to face the pressure of a time crunch to get products out the door within the two-day window. It can also take a hit to your profits when you’re absorbing the cost of the shipping.
For these reasons, the Fulfillment by Amazon (FBA) option available to sellers seems like a lifesaver. Sellers ship their products to one of Amazon’s 185 global fulfillment centers. From there, the Amazon warehouse employees handle the rest of the shipping process for you, including packing items, shipping them to consumers, tracking the order, and handling the return & refund processes as well. One advantage of Amazon FBA – products are automatically eligible for Prime two-day shipping. It sounds like a dream come true for SMBs since it mitigates the need to handle your own shipping procedures.
The 2020 Boom and Amazon’s Initial Response
With the Coronavirus outbreak, millions of individuals were quarantined within their own homes. The only link to the outside world was the internet. As such, ecommerce absolutely flourished. The convenience of shopping online was too great a temptation to resist. 300 million active customers flooded to Amazon in 2020.
Unfortunately, with this rise in Amazon sales came Amazon FBA changes to the behind the scenes systems. This included sudden enforced rules about storage pricing that drastically and immediately crippled many SMBs on the site. On March 17th in 2020, just as the COVID outbreak was gaining traction in the USA, Amazon sent an email to all active sellers indicating they would no longer accept shipments of “nonessential products” to the Amazon warehouses.
Given the unprecedented circumstances, the sudden change in storage procedure didn’t come as a surprise. Amazon chose to prioritize high-demand products including medical supplies and household staples – like toilet paper – until April 5th.
The Hardest Hit are SMBs
Unfortunately, this change was devastating to the SMBs that use Amazon FBA. According to Steven Yates, CEO of Prime Guidance, sellers of nonessential items saw orders drop by up to 60 percent. From there, the difficulties for SMBs on Amazon only grew. In the beginning of the year, an estimated 2.5 million sellers were active on the site; by the end of the year, only 1.5 million sellers were still active.
This drop in sales was tactfully avoided by the Amazon advertising team. Amazon Seller Central saw a 55 percent increase in sales in the 2020 year but only measured those sales from April 15th to January 2021, bypassing the sharp decline during the start of the pandemic.
The 2020 year only continued to get harder for FBA sellers on Amazon. In July 2020, the online giant announced a new ASIN-level quantity limit. What did that mean? It limited the maximum unit quantity sellers could ship to Amazon fulfillment centers. In crisis mode, sellers grew discouraged with the sudden changes.
2021 Amazon Policy Updates
After the debacle of March 2020, Amazon recognized that the pandemic had produced a tough year for all retailers, and chose to postpone the announcement of increased fees until later in the year to give businesses a chance to adjust.
However, this strategy of announcing fees later than usual had the opposite effect because there was no leeway for sellers to adjust to the new requirements once announced. Amazon posted an announcement on April 22, 2021 at 10:37 pm about a change that took effect that very day.
This announcement reversed ASIN-level quantity limits. Instead, restock limits would be set by storage type. This change in policy was advertised as a more flexible system, in response to seller complaints. However, this updated system actually further restricted the amount of units that could be sent to fulfillment centers.
With the immediate implementation, the announcement also meant that many sellers suddenly had a large percentage of overage, meaning they would need to remove that percentage of their current inventory from the Amazon warehouses before they could ship anything inbound.
With all the changes implemented, it has become clear that Amazon intends for FBA to be for short-term supply, not the virtually unlimited fulfillment service of the past. Sellers dependent solely on Amazon run the risk of losing profits if another sudden policy implementation occurs, because sellers with no other option are forced to accept these restrictions.
Improve Your Approach
Thankfully, FBA is not the only option when it comes to selling items on Amazon. It’s critical to have your products on the site, but depending entirely on Amazon leaves you vulnerable to any unexpected changes in Amazon procedures, and Amazon is their own business trying to stay afloat.
In the past, we’ve discussed alternatives to Amazon FBA. You can instead use one of the other two avenues available to independent sellers to fulfill customer’s orders through Amazon, which grants you the ability to diversify your channels. With Fulfillment by Merchant (FBM), sellers can fulfill consumer’s Amazon orders themselves or outsource to an order fulfillment company like One World Direct. In the case of Seller Fulfilled Prime (SFP), sellers fulfill orders through a hybrid of Amazon FBA and FBM options. With either avenue, sellers are no longer dependent solely upon the whims of Amazon.
Partnering with a 3PL, instead of being Amazon dependent, also allows you to adopt a multi-channel strategy, selling your products through other channels like Walmart, Target, Nordstrom, Wish, etc. without the extra hassle of fulfilling those orders yourself.
Are Amazon FBA changes affecting your business? Then get in touch with us at sales (at) owd (dot) com.