Background: I am a 3rd party seller who sells private label goods on Amazon. I gross annually between $1-2mil in revenue. At first many sellers and I kind of brushed off this new policy change that was initiated on March 1st, 2024. However once digging deeper into it and making shipments to send into Amazon, I realized how much of a vulture Amazon truly is. As much as I absolutely hate these changes, and I hope FTC investigates the shit out of them, this is extremely bullish for Amazon’s cashflow perspective.
https://sellercentral.amazon.com/gp/headlines.html?id=GF5ST3HMAHRNW2K5&ref=nslp\_at\_33\_GF5ST3HMAHRNW2K5\_en-US\_ttl\_rf\_recent\_news\_34https://www.ecomcrew.com/amazon-fba-big-fee-increase-2024/
Analysis:
Amazon’s recent strategic adjustments are poised to enhance its profitability significantly through the expansion of the Amazon Global Logistics Program and modifications to its Fulfillment by Amazon (FBA) policies. Here’s a breakdown of why these changes will benefit Amazon financially:
Expansion of Amazon Global Logistics Program:- What it is: Amazon Global Logistics is a comprehensive shipping and logistics service that facilitates international shipping for sellers on Amazon’s platform. It handles cargo from the point of origin to Amazon warehouses worldwide, including sea, air, and land transportation.
\- Impact: Given that 60-70% of Amazon’s third-party sellers are from China, and a substantial portion of private label goods on Amazon are imported from China, the expansion of this program positions Amazon as a key logistics provider for international sellers. By handling sea shipping directly, Amazon eliminates the need to pay third-party shipping companies, thus capturing more revenue from the logistics and shipping process.
“Voluntary” Use of Amazon Warehouse Distribution (AWD) for FBA Sellers:
\- What it is: Amazon’s policy now encourages third-party FBA sellers to use its Amazon Warehouse Distribution system, compelling them to store inventory in Amazon’s warehouses, which incurs storage fees, inbound fees, and other charges. Amazon will then automatically distribute its inventory to FBA warehouses as it deem fit.
\- Impact: This move ensures a consistent revenue stream from storage and handling fees paid by sellers. Additionally, sellers are faced with significant penalties for not using AWD, such as high inventory placement fees or the logistical burden of distributing inventory across multiple locations in the USA. (Before this, sellers can usually send all its inventory to one warehouse to save on cost, but that’s no longer the case). This strategy not only generates more revenue from fees but also reduces Amazon’s costs by shifting the inventory distribution burden to sellers. The average inventory placement cost per box will be about $25-$50. This is absolutely ridiculous.
Implementation of Extra Fulfillment Fees for Low Inventory:
\- What it is: Amazon has introduced an additional fulfillment fee for sellers who maintain less than 28 days of inventory in Amazon’s warehouses. This fee, a minimum of $0.89 per unit, penalizes sellers for not keeping a sufficient stock, especially for high-demand items.
\- Impact: This policy directly impacts sellers’ profit margins, especially for those selling products at lower price points. For example, a $9.99 item with a profit margin of $2, selling 10,000 units a month, this extra charge significantly eats into profits. The intent behind keeping inventory levels lean—to avoid excessive storage fees—now results in additional costs through fulfillment fees.
This policy effectively forces sellers to either risk running low on inventory and incurring extra fees or overstock to avoid these penalties, leading to higher storage fees. What’s even more fucked up about it is that Amazon fulfillment centers usually checks in our shipments late. This means that if I have shipment that was delivered to Amazon Warehouse (Say enough inventory to cover 40 days) but not checked in, and I only have 30 days of inventory left, now I will have to pay extra fee because of “low inventory” even though it takes forever for Amazon to process your inventory. I have multiple shipments that’s been delivered for about 3 weeks now, and they are still not checked in.
\- Strategic Benefit for Amazon: By charging extra for fulfillment when inventory levels fall below a certain threshold, Amazon not only generates additional revenue but also pressures sellers to maintain higher inventory levels, thereby increasing the use of Amazon’s storage facilities. This policy, combined with the “voluntary” use of Amazon’s Inventory Placement service for restocking, which incurs additional fees, further ties sellers into Amazon’s logistics ecosystem. It incentivizes the use of Amazon’s AWD system, underlining Amazon’s strategy to centralize control over logistics and distribution, enhancing its revenue streams from logistical and warehousing services while also potentially reducing operational complexities and costs.
\*\*Overall Financial Impact:\*\*These backend changes significantly reduce operational costs for Amazon by streamlining logistics and warehouse operations. Simultaneously, they increase revenue through logistics services, storage, and handling fees. By centralizing control over logistics and storage, Amazon not only saves on the costs of dealing with external logistics providers but also capitalizes on the fees charged to sellers. This dual approach of cutting costs and boosting revenue streams is poised to enhance Amazon’s profitability in the competitive e-commerce and logistics sectors.
Again, I hope Lina Khan investigates the shit out of Amazon for using this bullshit tactic, but it is what it is. This is going to be extremely bullish for Amazon as it cuts costs while strengthen its global logistics empire.
Bonus: Amazon Advertising is also a bunch of bullshit (In terms of as a gigantic cash cow for them). The suggested bids for keywords are usually 2x higher than the actual bid needed to get top spots. This makes uninformed sellers spend a crap on advertising everyday. Just for perspective, I have about 12 products in my private label brand, and I spend on average $300-$500 a day. YES EVERY SINGLE DAY. That’s about $110k to $190k a year just in ads. This is extremely high margin business for Amazon because they don’t have to do anything. In addition, by Amazon running Ads on most prime video accounts, they will make on average $10/month per user. They also signed deals with NFL to exclusively stream their games. As much as I hate them, the future for Amazon is only up.
Extra bonus: Amazon already handles majority of packages in the US. By a click of a button, they can easily start taking marketshare from both UPS and Fedex by offering shipping to everyday people. They can utilize their wholefoods or kohl’s location to receive and ship packages. Or they could also offer franchise opportunities to mom-pop shipping/packaging stores just like how UPS and Fedex has it.
Position: 20% of my portfolio is now in AMZN. Even at ATH, I plan to change to 50% weighted in Amazon… This is pissing me off, but I gotta find a way to get my money back somehow.
