Amazon.com, Inc. (NASDAQ: AMZN) is shaking up the e-commerce world once again with a fresh twist in its seller playbook. The third-party sellers who choose to ship their own products instead of tapping into Amazon’s fulfilment services are about to face an additional fee of 2% on each item sold. Starting October 1, 2023, members of the Amazon Seller Fulfilled Prime (SFP) program will have to pay this extra fee, as disclosed in a notice sent to merchants and reported by CNBC.
“We’re updating our requirements for Seller Fulfilled Prime to ensure that it provides customers a great and consistent Prime experience,” the notice states.
But what exactly does this fee entail, and how does it align with Amazon’s larger strategy?
Before we jump to conclusions about the potential downside of this 2% additional cost for third-party sellers handling product shipments, let’s take a pause to delve into the specifics of Amazon’s Seller Fulfilled Prime program and how it functions.
What Is Amazon Seller Fulfilled Prime?
Introduced in 2015, Amazon Seller Fulfilled Prime (SFP) program offers sellers a Prime badge of honour, granting them the privilege of delivering directly to domestic Prime customers from their own warehouses. The option bypasses Amazon’s standard fulfilment services, offering a more personalized touch.
The allure lies in the commitment to fulfil orders with the coveted One-Day and Two-Day Delivery, all without incurring additional charges for Prime customers.
To ensure a seamless experience, Amazon equips sellers with suitable transportation solutions that align with the high standards of the Prime customer journey. While it sounds like a sweet deal, the catch is that sellers have to meet Amazon’s rigorous Prime delivery standards, including super-speedy shipping and weekend service. However, this program hasn’t caught on as much as Amazon’s traditional Fulfillment By Amazon (FBA) service.
Amidst this backdrop, Amazon opted to reopen sign-ups for the invite-only SFP program in June, after a suspension of enrollment in 2019.
On the other hand, Fulfillment by Amazon (FBA) is a service that empowers sellers to outsource order fulfilment to Amazon. In other words, sellers use Amazon’s logistics services. With FBA, sellers can send their products to Amazon’s expansive network of global fulfillment centers, thereby enabling customers to enjoy the perk of free, two-day shipping through the Prime program. When a customer makes a purchase, the intricate dance of picking, packing, and shipping is orchestrated by Amazon’s fulfillment specialists. Furthermore, Amazon’s comprehensive package includes customer service and returns management for these orders.
Amazon Forcing Sellers to Opt for FBA
In the intricate ecosystem of online selling, Amazon doesn’t shy away from its slice of the pie. The e-commerce giant is already charging sellers referral fees, ranging from 8% to 15% for each sale on its platform. But the expenses for sellers don’t stop there; sellers may also find themselves shouldering costs for warehousing, shipping, packing, and even diving into advertising fees. Now, introducing a fresh layer to this multifaceted scenario, Amazon is nothing but adding another layer of financial complexity for sellers who opt to manage their own shipping.
For third-party sellers, especially smaller ones, the additional 2% fee translates to increased operating costs. This could impact profit margins and make it harder for some sellers to remain competitive. Smaller sellers might find it challenging to absorb this extra expense, affecting their ability to offer competitive prices.
Therefore, this 2% extra fee is most likely to discourage third-party sellers from participating in the SFP program. The financial burden may prompt several sellers to contemplate an alternative route by considering switching to Amazon’s fulfillment services (FBA).
But wait, isn’t that exactly what Amazon aims for?
Amazon’s Crafty Strategy: Consolidation Under Its Umbrella
The introduction of a 2% fee on self-shipping sellers appears to be a well-calculated move by Amazon. This strategic move seems aimed at pushing sellers, especially smaller and mid-sized ones, to embrace Amazon’s suite of services tailored to their needs. As more sellers will opt for Amazon’s fulfillment services, the e-commerce giant takes full control over everything, from packaging the product to the final delivery to the customer’s doorstep.
An additional benefit of implementing this additional fee for third-party sellers who handle their own shipping is to ensure their dedication to meeting the high standards required for Prime delivery. By holding SFP sellers to the same rigorous delivery expectations as Amazon’s own fulfillment services (Fulfillment By Amazon), Amazon aims to maintain a consistent Prime experience for customers.
The fundamental idea is that sellers who would pay the extra fee would be more likely to prioritize efficient shipping, leading to faster and more reliable delivery times for Prime customers.
Therefore, it’s important to note that the additional 2% fee applied to each item sold by SFP sellers might not directly address the challenges that sellers face in terms of shipping efficiency and delivery speed, especially if they lack the resources and infrastructure that Amazon’s fulfillment services provide. It is just a strategic masterstroke by Amazon to stay ahead in the ever-changing world of online commerce.
In a broader context, the global logistics industry is experiencing rapid growth globally, and a significant driving force behind this growth is the booming e-commerce sector. As more consumers turn to online shopping, the demand for efficient and reliable delivery services has soared. If Amazon successfully takes full control over the logistics operations from third-party sellers who independently manage their warehouses and shipping, it could position itself as a formidable logistics entity. This strategic move has the potential to generate increased revenue and profits for the company, besides strengthening its presence in the logistics market.
The fees accrued from third-party sellers, coupled with potential income from logistics services, could significantly contribute to Amazon’s overall financial performance.
Navigating Regulatory Scrutiny
The spotlight is back on Amazon’s marketplace business as antitrust investigators both in the United States and internationally have raised concerns. Many of these investigators assert that by implementing policies such as leaving 2% on third-party sellers Amazon leverages its considerable influence and reach to exert pressure on the merchants who sell products on its platform. The essence of this scrutiny revolves around whether the company’s practices coerce sellers into using its services, ostensibly in exchange for favourable treatment within the marketplace.
Curiously, this heightened focus coincides with an impending legal clash. The Federal Trade Commission (FTC) reportedly stands on the verge of initiating a long-anticipated lawsuit against Amazon, with the legal volley potentially taking place in the coming weeks. The agency’s in-depth examination of Amazon covers multiple facets, a key point being the company’s interaction with sellers within the bustling marketplace. Notably, this marketplace now constitutes approximately 60% of Amazon’s overall retail sales, making it a significant area of interest for regulators.
In the midst of this regulatory saga, Amazon has not been reticent. The company has vigorously challenged the allegations raised by regulators. In a recent blog post, Amazon presented its stance, arguing that sellers’ preference for their expansive marketplace stems from the undeniable value it offers. The company emphasizes that while the paid services it provides are optional, they offer sellers potent avenues for enhancing business growth at a notably lower cost.
In the year 2022, Amazon was brimming with excitement as independent sellers achieved yet another year of breaking records. More than 60% of sales in the Amazon store come from independent sellers, mostly small and medium-sized businesses. Notably, US-based sellers achieved a remarkable feat by selling more than 4.1 billion items to customers worldwide throughout the year, with an impressive average of over $230,000 in sales in the Amazon store.
What’s your take on Amazon’s 2% extra fee on their party sellers who handle their own shipping to customers? Let us know in the comment section below!
