Amazon Fee Hike Cuts Seller Margins to 8%, Spurs Catalog Cuts

Key Takeaway

• Amazon's new fees, including a levy on shipments to fulfillment centers, are squeezing merchants' profits, with some seeing margins drop from 20% to 8%.
• Despite Amazon's claim of fee restructuring for one-day delivery benefits, seller services revenue grows three times faster than fulfillment costs.
• Merchants adapt by reducing product catalogs and modifying items to meet new requirements, but some plan to exit Amazon due to unpredictability.

Fee Adjustments Impact Merchants

Amazon.com Inc. has implemented changes to the fees it charges merchants, effectively transferring more of its operating costs onto the small businesses that make up the majority of sellers on its platform. This adjustment comes at a time when American consumers are increasingly opting for less expensive products across nearly all categories, a trend identified in a recent Adobe Inc. report. The shift in consumer behavior complicates merchants' ability to pass on price increases, affecting their profitability. Duncan Freer, a merchant specializing in weighted blankets and sleep masks, anticipates his profit margin will decrease from 20% to 8% due to the new fees, including a levy on shipments to Amazon's fulfillment centers introduced in March.

Amazon asserts that the fee restructuring is designed to reflect its costs for distributing inventory across the United States to enable one-day delivery, which is intended to boost sales for online merchants. The company also notes that some fees have decreased, such as commissions for sellers of low-cost apparel in January, a move seen as a response to competition from Chinese fast-fashion startup Shein.

Merchants Navigate Rising Costs

Despite Amazon's explanation, many merchants express concerns that the benefits of the fee adjustments are skewed in favor of Amazon. This perception is supported by Amazon's financial reports, which show seller services revenue, including Fulfillment by Amazon logistics, growing at a rate three times faster than its fulfillment costs. Over the past seven quarters, seller services revenue has increased significantly, outpacing the growth of fulfillment expenses.

Antonio Bindi, a Brazilian businessman selling home storage and kitchen products, highlights the increasing complexity of Amazon's fee structure. New fees, such as a levy for low inventory introduced in April, add to the challenges faced by sellers. Bindi is reducing his product catalog from 500 to 400 items to manage the complexity and costs more effectively.

Sellers Adapt to Changes

Merchants are finding creative ways to adapt to the new fee structure and consumer spending habits. Neil Ayton, a San Francisco seller of golf yardage books, yoga gear, and pickleball equipment, encountered a sudden increase in shipping costs for his yoga sticks due to a change in Amazon's size limit for products. This adjustment resulted in a loss of $3 per sale for Ayton, prompting him to recall and modify his products to fit the new requirements. Despite minimizing losses, Ayton plans to wind down his Amazon business, citing unpredictability and the challenges of adapting to frequent changes.

Management Quotes

• Duncan Freer, Chicago businessman:

  "Amazon just keeps grabbing more and more. It’s like a kick in the gut."

• Antonio Bindi, Brazilian businessman:

  "Five years ago, Amazon was a platform that would facilitate your business operations and let you focus on what you’re good at, like creating great products. You could just send your products to Amazon, and they’d take care of everything. Now you need an entire department to deal with the complexity. The costs are prohibitive."

• Neil Ayton, San Francisco seller:

  "Amazon kind of teases you. It’s great when it’s working nicely, but you never know what surprise is coming tomorrow."