Despite having nearly doubled the footprint of its logistics network during the e-commerce boom in the pandemic, Amazon is still constrained for space in its warehouses. With peak season surcharges, inventory threshold restrictions and rising storage fees looking unlikely to go away anytime soon, the reopening of Seller Fulfilled Prime provides a welcome alternative for holiday season fulfillment.
FBA Sellers Hit With Significant Surcharges in Q4, Making Holiday Sales Expensive:
Amazon introduced key policy changes in Q4, impacting FBA sellers’ sales. Let’s explore some of these changes and their impacts:
Amazon Inventory Limits and Restock Limit Restrictions:
- Amazon lowered its restock limits by 10-15% in October 2022, right before the holiday season during which sellers expect high volume sales.
- These changes came without any warning leaving sellers dismayed. One seller complained that their restock limit dropped from 40,000 to 4,000 over one night.
- Amazon slapped an expensive overage fees charge to sellers wanting to exceed restock limits to cater to holiday season demand.
- Moreover, restocking limits reduced sellers’ inventory performance index (IPI) scores, leading to higher storage fees.
- Sellers were compelled to choose between two bad options - removing items to restock faster moving items or increasing marketing spends to move items faster.
- Due to these tricky tradeoffs, there was a higher chance of products going out of stock, leading to inactive listings.
- All these changes shrank sales and seller margins during the holiday season.
Peak Season Surcharge:
- Amazon announced a peak season fee on FBA merchants for the first time from October to January.
- The surcharge cost an average of $0.35 per item sold through FBA, driving seller costs further during holiday season.
Long Term Storage Restrictions:
- Effective April, 2023 Amazon announced a storage utilization surcharge for the monthly storage fees, forcing sellers to deplete products faster to avoid additional charges.
- This essentially means higher costs for sellers with high utilization ratios (volume of goods stored divided by volume of goods shipped).
- For the holiday season, this means that sellers need to optimize for faster moving items.
- This is bad news for sellers because holiday season is a good opportunity to deplete slow moving items as everyone loves to buy.
- Sellers might end up incurring higher cost and risk to deplete slow moving goods.
These changes have been stemmed from cost cutting pressures on Amazon to improve its margins, driven due to inflationary pressure and post pandemic demand stabilization and may pass onto 2023 holiday season.
How Can Sellers Prepare for the 2023 Holiday Season?
Assess Your Peak Season FBA Costs
Sellers should understand the cost implications of the FBA policy changes such as peak season surcharge, restock limitations, long term storage restrictions and fees hikes to evaluate if FBA still makes sense for them or not. SFP can be a well suited alternative as it does not come with these additional surcharges and restrictions.
Research SFP Program Requirements and Strategies in Detail
To win in SFP, you should have a deep understanding of the program. Cahoot has created a guide to sell and win on Amazon Seller Fulfilled Prime (SFP), that will help you with everything you need to know about SFP
Find an Ideal SFP Fulfillment Partner
Your fulfillment partner is critical to winning on SFP. To achieve nationwide delivery you need a partner with a warehouse network or multiple USA fulfillment centers. Even within that network, you need a partner who can distribute your inventory closer to the end consumer to meet and achieve the 1-2 day delivery requirements.
