The Rising Cost of Amazon Fees and How to Navigate
Amazon has continued to raise its fees for sellers — our Director of Logistics, Serge Furmanau, takes a deeper look into why, the potential uptrend for the cost of the beauty space, and explains what Front Row can do to help you keep selling smoothly.
Why is Amazon raising its fees?
Amazon is attempting to encourage efficient use of its fulfillment network — for example, maintaining low inventory levels and moving aged inventory out — by introducing new fees for inventory management, allowing Amazon to strike a balance between operational costs and the needs of its sellers.
A key factor contributing to their success is the extensive use of Machine Learning across all their services, enabling them to tackle complex problems quickly and effectively. Amazon’s Seller Central includes a state-of-the-art forecasting engine that optimizes inventory levels, improves delivery speed, and strategically places products closer to customers, potentially increasing unit sales by up to 15%. The engine considers average and optimistic scenarios, tracks sales for up to 52 weeks, and incorporates seasonality by comparing sales to the previous year. Furthermore, Amazon has established smaller Same-Day Fulfillment Centers in metropolitan areas, reducing the time it takes for an order to travel from the picking area to the outbound door to just 11 minutes.
Amazon’s focus on fast deliveries, efficient inventory utilization, and sustainability drives their operations, so this strategy allows Amazon to stay as close to this business model as possible without overwhelming it.
What are the relevant increases for the beauty, lifestyle, and wellness industries?
The beauty industry is showing significant growth, with a market projection of $163.32 billion by 2028, up from $115.03 billion in 2023. This is driven by sustainability, technological innovations, and a shift towards digital commerce. This rising demand for beauty and wellness products and services has led to increased consumer expenditure, with the personal care and beauty segment dominating the global health and wellness market in terms of revenue. A recent report by McKinsey also highlighted that, as consumer demand for wellness products and services increases, the market also continues to become increasingly more crowded, leading to a rise in early-stage investments in the health and wellness space.
These findings indicate a clear trend of increased fees and costs in the beauty, lifestyle, and wellness industries. Moreover, economic instability has led to inflationary pressures, causing brands to raise prices, with the beauty price per unit increasing significantly. The general adjustments in FBA and referral fees, alongside new fees for inventory management, will impact sellers across all categories.
What does this mean for 1P sellers? How about for 3P sellers?
The fee changes affect both 1P and 3P sellers, albeit in different capacities. 1P sellers might see these adjustments as part of their broader negotiations and terms with Amazon, while 3P sellers, particularly those using FBA, need to adapt their strategies to manage increased fees and leverage any available discounts or programs designed to reduce fulfillment costs. The introduction of low inventory fees and changes in storage fees highlight the need for efficient inventory management for all sellers. While 1P sellers may face pressure on wholesale margins and payment terms, 3P sellers contend with referral and fulfillment fees that can eat into profits.
The fee increases have continued to put pressure on the profitability of 1P sellers. Amazon's profit from sales in the hardline category has reportedly increased around 5%, cutting further into profits for brands that sell 1P. To remain competitive and visible on Amazon's platform, 3P sellers must invest in advertising, which adds to the cost of selling on Amazon.
How can our Marketplace Partnership team help brands navigate Amazon's continued changes?
Our Marketplace Partnership team is prepared to advise your brand on strategies to help you:
1. Maintain optimal inventory levels to avoid low inventory fees and make use of inventory-related discounts.
2. Leverage Amazon programs like SIPP (Ships in Product Packaging) to reduce fulfillment costs.
3. Understand fee structures by providing clarity to allow you to budget and forecast more accurately and better maintain profitability.
Interested in learning more about this fee restructuring and about what a partnership with us can do for your brand? We’re ready to help you take full advantage of Amazon’s marketplace. Visit frontrowgroup.com/contact/ to start chatting with us now.