The Current, delivered daily.
Citing rising costs, Amazon is increasing fulfillment fees for sellers who use a Fulfillment by Amazon (FBA) service to send orders to the countries that border the US. At the same time, FBA said it is automatically enrolling eligible sellers in the program, unless they opt out.
In a Tuesday posting on Seller Central, Amazon said it is increasing fees for Remote Fulfillment with FBA, which is a service that allows sellers to ship inventory that is stored in the US to customers based in Mexico and Canada. The increase is effective June 30.
Under the changes, the fulfillment fees for a 6-ounce-or-less package heading to Canada will increase from $7.22 Canadian dollars to $7.58 Canada.
For a package of the same size heading to Mexico, the fee will increase from $102.39 MXN to $122.87 MXN.
The fees are dependent on the weight of a package, and increases are applied to each weight class. See a full schedule here.
Launched in 2018, Remote Fulfillment with FBA is designed to make it easier to sell outside the US – namely, to the countries with which the US shares a border. In turn, it provides shoppers in Mexico and Canada with access to more selection on Amazon's marketplaces in those countries. The service provides free shipping to Prime members in those countries.
In its announcement, Amazon said it improved the service as part of a wider fulfillment network buildout, but noted that the costs of operating it are now rising.
“Remote Fulfillment with FBA leverages both US and international fulfillment operations. Over the course of the pandemic, we have made significant investments in these operations to better serve you and our customers,” Amazon wrote. “We’ve nearly doubled fulfillment capacity and added over 750,000 full- and part-time roles, and our average hourly wage in the US has climbed from $15 to $18. These investments have enabled tremendous growth for sellers, who have increased sales in our store by more than 70% during this time.”
Amazon added that it is implementing the fee increases in order to reflect “the changing costs of fulfillment, transportation, storage, and customer service across North America.”
“These increases are in line with or below industry-average increases for fulfillment services,” the company added.
The coming change to the Remote Fulfillment with FBA program could reach beyond the sellers who are already using the service.
Starting July 1, 2022, eligible sellers for Remote Fulfillment in Canada or Mexico or both will be automatically enrolled, unless they have unenrolled from the program prior to that date. You will receive an alert on your Seller Central homepage notifying you of your upcoming automatic enrollment in one or more of your eligible stores at least 30 days prior to the enrollment date. The notification will also provide you with access to a landing page where you can choose to opt out of one or more of the stores that you don’t want to be enrolled in at any point during the 30-day period.
You also have the option to manually enroll or unenroll from Remote Fulfillment in one or more of the stores that you are eligible for at any time.
This means sellers who have been identified as eligible for the service must take the extra step of opting out before July 1.
So far, 2022 has brought a series of fee increases and changes to Amazon’s FBA program, which allows third-party sellers to tap Amazon's network for storage, fulfillment and shipping to send goods to customers. In January, it increased permanent fees across the entire program by an average of 5.2%. Then, on April 30, the company added a 5% fuel surcharge to account for inflation. The company said the latter surcharge would be a temporary measure. In April, the company also made inventory-related changes to expand a program for small items and create a new XL storage category within FBA.
On the whole, the company is seeking to tame costs associated with its network that stores, packs and ships orders. For the first quarter of 2022, the company reported $2 billion in incremental costs as a result of having “overcapacity” in fulfillment and transportation. After making massive investments in its fulfillment network over the two years of the pandemic ecommerce boom, the company ended up having excess space as demand started to level off. CFO Brian Olsavsky said on the company’s earnings call that Amazon will aim to grow into the space it built, and added that it will be glad to have capacity for July's Prime Day and the holiday season. The company’s recently-announced Buy With Prime service, which will enable sellers to offer Amazon Prime fulfillment and delivery on any website, figures to help fill this capacity further. But Olsavsky added that costs would persist over the next several quarters.
"Many of the build decisions were made 18 to 24 months ago, so there are limitations on what we can adjust mid-year,” he said.
Amazon cited the pandemic-era investment it made in its fulfillment network in its announcement on the latest fee increases. Around the time of the inflation surcharge, Amazon CEO Andy Jassy told CNBC that the company worked to balance making improvements to meet increased demand for ecommerce, while trying to avoid raising fees. This followed Amazon’s yearslong pattern of seeking to keep seller fees down in order to make FBA as attractive as possible to sellers. But with inflation, a pandemic and war in Ukraine bringing continued swings in the economy, the company reached a limit.
“At a certain point, you can’t keep absorbing all those costs and run a business that’s economic,” Jassy told CNBC.
Trending in Operations
Upping marketing spend, growing loyalty members and multichannel sales are key to the beauty brand's strategy.
Digital commerce is helping e.l.f. Beauty pour fuel on the fire.
The brand continues to be one of the shining examples of the staying power of beauty products despite consumer pullback in other areas of discretionary spend. e.l.f. grew net sales 48% in the fiscal year ended March 31 as it reached $500 million in sales for the first time. For the most recent quarter, sales grew by a whopping 78%. The company is seeing profit gains as well, as adjusted EBITDA grew 56%.
With the top-line revenue flowing, the brand was opportunistic about how it invested in marketing in the most recent quarter. After upping spend to 33% of net sales in the quarter, the company ended up with marketing and digital investment at 22% of net sales for the year. That was well above the higher end of its 17% to 19% outlook. In the coming year, it expects 22% to 24%.
The fact that digital and marketing fall in the same category reflects the brand’s approach to marketing. It's a favorite among Gen Z, and has found a home on the social apps that are popular with the generation.
“Our disruptive digital-first marketing engine has built strength across multiple social platforms,” CEO Tarang Amin told analysts on the company’s earnings call. “We are a pioneer on TikTok and are now a four-time TikTok billionaire with our last hashtag challenge garnering nearly 15 billion views. We were the first major beauty company to launch a branded channel on Twitch and the first beauty brand on BeReal.”
As a sales category, digital penetration is now 17%, growing from 14% last year. The channel grew 75% in the most recent quarter.
Amin laid out three factors driving this trend:
Marketing. The marketing investment that e.l.f. made brought strong returns, and the digital-first nature of those ads are bringing people to the brand’s digital sales channels.
Loyalty. E.l.f.’s Beauty Squad loyalty program has 3.7 million members, which is a 25% year-over-year increase. Loyalty members are the biggest driver of the brand’s digital business, accounting for over 80% of sales on the brand’s DTC site.
Multichannel. e.l.f. is the only one of the top five mass cosmetics brands that has a DTC site, Amin said. It is also seeing strong growth at Amazon and other retailer ecommerce websites. The growing presence is “building upon itself,” Amin said.
With digital growth, the brand is seeking to expand capacity in the supply chain that will provide more efficiency and faster delivery, as well. It is shifting to a more distributed ecommerce fulfillment model. Previously, it had one automated warehouse in Columbus, Ohio, which meant shipping to the West Coast could take time. Now, it is moving to a multinode distribution network. With the first couple nodes up and running, there is already improvement in delivery times.
The brand is also adding distribution capacity to its main warehouse in Ontario, California.
As marketing helps more people discover and buy from the brand, the operational improvements will help create a customer experience that lives up to the hype.