Yahoo Finance Amazon collects $140 billion in annual fees from sellers. Now many are fuming over ‘crazy’ new fees they say tighten Amazon’s grip on their businesses
Things are about to get more complicated for many Amazon sellers—and Amazon customers may pay the price, literally.
Over the next month, Amazon is implementing the latest in a series of new fees for businesses that sell goods on Amazon, in changes that the company says are designed to speed up shipping speeds for Amazon customers while reducing the costs of such initiatives. But a half-dozen top Amazon sellers told Fortune this week that the new fees are complex and expensive, and may force them to overhaul their businesses and seriously consider ceding more control of their supply chain to the tech giant at a time when it is facing a government lawsuit that alleges the company is already abusing its power over these merchants.
All of these sellers told Fortune that at least one of the new fees—called “the inbound placement service fee”—appears designed to pressure merchants to utilize a new Amazon service called AWD, or Amazon Warehousing and Distribution. Some of these merchants also said that this fee, coupled with another that Amazon will soon charge for low inventory levels, will force them to pass on price increases to Amazon customers.
“It’s becoming increasingly difficult to sell on Amazon,” said Albert Grazi, a highly-rated Amazon seller of seven years who sells around $5 million of water filtration products on Amazon each year through brands like the Mist filter line. “You are getting squeezed from all sides.”
An Amazon spokesperson, Mira Dix, said in a statement: “By splitting what was a combined outbound fee into an inbound and outbound fee and adding a low-inventory-level fee, we will more closely align fees for sellers with our underlying costs while also providing sellers with more choices for how they use our services, giving them more transparency and control over their fulfillment costs. This allows us to create incentives for sellers to use our network more efficiently so we can share the cost savings.”
The spokesperson said that “many” sellers will end up paying Amazon less per unit sold than they did previously, but none of the six top sellers who spoke to Fortune considered that a possibility for their business.
While Amazon is increasingly thought of as a tech giant as much as a retailer—with significant AI investments, a massive cloud computing business in AWS, and a voice assistant that’s become a household name—about one-quarter of its total revenue, or $140 billion in 2023 alone—comes from the fees it charges these sellers to host their products and do the unsexy work of storing and shipping their goods. In exchange, small companies can build big businesses by easily accessing one of the largest customer bases in the world. But now Amazon wants even more.
In recent years, Amazon has extracted a greater cut of sales from the small and midsize merchants who sell through its site, even as Amazon’s reliance on these sellers continues to grow. During the final three months of 2023, the proportion of total goods sold through Amazon that come from these sellers—rather than Amazon’s own inventory—crossed the 60% mark for the first time in company history. At the same time, from 2017 to 2022, the cut of revenue that Amazon takes from these sellers increased from around 40% to around 50%, according to the e-commerce research firm Marketplace Pulse.
Feels like "10 years’ worth of increases and changes" in one shot
Sellers pay Amazon listing fees, advertising fees, and in many cases warehousing, shipping, and customer service fees through a service called Fulfillment by Amazon, or FBA, that assures their items will qualify for Prime shipping. Amazon’s third-party seller business—known as its Marketplace—is also highly profitable, the Federal Trade Commission has alleged, but just how profitable remains a secret that the company does not disclose.
The new inbound placement and low-inventory fees apply to sellers who already use FBA, but Amazon wants to play a role even earlier in their supply chain. In the past, an Amazon seller might import goods from overseas suppliers and then send all that inventory to a warehouse owned by a 3PL or third-party logistics company. From there, the 3PL will then ship out smaller segments of the seller’s inventory to Amazon fulfillment centers and potentially those of other retailers. But with Amazon Warehouse and Distribution, or AWD, Amazon is essentially trying to replace those 3PLs. (Amazon also runs another relatively new service called Amazon Global Logistics, or AGL, that charges sellers to transport a seller’s goods from overseas suppliers into a US Amazon fulfillment center.)
Over the past two years, Amazon has also reorganized—or regionalized—its U.S. warehouse network to try to share inventory across eight regions to speed up delivery times and reduce transportation costs, in an effort to get more goods to customer doors faster and cheaper. With these new changes, if an Amazon seller is not willing to send goods from its own 3PL warehouse to at least four different Amazon fulfillment centers, Amazon will now charge an extra fee for every single item. The new placement fees will range anywhere from 21 cents to 68 cents per unit for standard-size goods, and 55 cents to $6 for bulky products. Pricing is based not only on the size and weight of an item, but also depending on how many fulfillment centers a seller will or won’t ship their items to. Of course, Amazon will waive these new fees if sellers decide to pay for AWD instead.
Grazi, the Amazon seller, said it makes sense for Amazon to begin charging sellers to spread their inventory across the U.S. But, to him, the costs don’t net out.
“It’s a very high fee,” he said. “It doesn't make sense how much money they are charging.”
Judah Bergman, the CEO of Jool Baby, a baby-product company that does tens of millions in sales on Amazon annually, says the introduction of these new fees and others announced in December feel like “10 years’ worth of increases and changes in one.”
“I’m very experienced on Amazon and I’ve spent so much time on this,” he said, “[but] for many items, I still don’t have clarity on how exactly I’m going to sell profitably yet. It’s crazy.”
Sellers now get penalized for low inventory—and for too much inventory
Beyond the new inbound placement fees that go into effect March 1, on April 1 Amazon will also begin charging many sellers a fee if they don’t have four weeks of inventory in Amazon fulfillment centers. One problem, sellers told Fortune, is that Amazon also charges sellers for storing too much inventory in Amazon facilities.
“You gotta precisely thread the needle to not get completely killed,” Bergman, the Jool Baby CEO, said of the low-inventory charges.
Amazon’s solution? Again, sellers can avoid the low-inventory fees by giving Amazon even more control of their supply chain by utilizing AWD to replace a seller’s existing 3PL warehouse relationship.
“It’s very clear they are carrot-and-stick-ing us into using AWD,” said a longtime, eight-figure apparel seller who requested anonymity out of a fear of reprisal for speaking candidly about Amazon’s actions.
Different sellers had different reasons for not wanting to use AWD. Some simply didn’t want to give more control to Amazon, while another said they believe their current 3PL relationship will be cheaper. Two others said they’ve heard from peers who felt the service was not yet ready for prime time.
Several of the sellers who spoke to Fortune said that the company’s marketplace has become a safer place to do business over the past year or two, with the company doing a better job of policing nefarious merchants who sabotage competitor listings. But the recent fee changes have them feeling resigned to the fact that a significant power imbalance remains.
“I’m gonna comply and send [my inventory] into AWD,” Grazi said. “And that’s it.”
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This story was originally featured on Fortune.com
