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Don’t waste another dime on bloated channel reporting and vanity metrics.
The inventory-related changes for FBA sellers were announced April 18.
Amazon is making changes for the smallest and largest goods. (Image via Pixabay)
Fulfillment By Amazon (FBA) doing more for the smallest and largest items that its sellers ship.
In between delivering big news about a fuel surcharge and a new program that extends Prime throughout the internet, FBA made a pair of key inventory-related announcements on Seller Central April 18.
The changes will bring more items to a program for small items and add a new XL storage category within FBA, which allows third-party sellers to access Amazon’s logistics network for storage, fulfillment and shipping to move their goods. They were first reported by Ecommerce Bytes.
Here's a quick breakdown:
Amazon is thinking of the little guys with one change.
FBA increased the price threshold for products to be eligible for FBA’s Small and Light program from $8 to $10.
The Small and Light program offers reduced fulfillment costs for smaller, low-cost items.
“This change allows more of your products to become eligible for the program and receive fulfillment discounts,” the company wrote to sellers. “Other program eligibility requirements, such as weight limits and product dimensions, will remain the same.”
The change takes effect on April 28.
A screenshot of Amazon's comparison of Extra-large vs. oversize items. (Image via Amazon Seller Central)
In another announcement, Amazon said it is adding a new classification on the larger end of the capacity scale.
Extra-large is a new size for storage, Amazon said in a message. This will be available in addition to the existing oversize storage type.
“This new storage type gives you more flexibility in how you manage your inventory and quantity limits for larger items,” Amazon wrote.
Extra-large items are bigger than oversize in key measurements, according to details on the FBA website. Meeting a qualification for extra-large requires the longest-side length of 96 inches or more, a girth of 130 inches or more and a weight of 50 pounds or more.
The company said classifications will be “based on past and forecasted sales, adjusted by fulfillment center capacity.” The announcement did not detail exact sizes, but rather directed sellers to check their monthly storage fees reports.
Existing inventory that qualifies for the extra-large storage type be will be reclassified, the company said.
Any change to FBA can have massive scale, as the service is used by the vast majority of sellers on Amazon. According to The State of the Amazon Seller 2022 report by Jungle Scout, 89% of Amazon's two million third party sellers store and send goods through FBA.
Amazon is by far the largest ecommerce service, and making its vast fulfillment network accessible through FBA has helped it grow. However, FBA still operates in a competitive marketplace, and the company felt that pressure in recent years.
After all, FBA is not the only option for Amazon sellers. The other is Fulfillment by Merchant (FBM), in which sellers are responsible for the fulfillment of their orders. When sellers choose this option, they either fulfill orders themselves, or opt to work with a third-party logistics (3PL) company. (About one-fifth of sellers use both options.)
Over the last few years, FBM gained more sellers as FBA put limits on inventory. From Jungle Scout's report:
Amazon began restricting FBA inventory in 2020, possibly due to COVID-19-related strains on its fulfillment network. Many FBA sellers could no longer store all the inventory they needed in Amazon’s fulfillment centers, and had to find a quick alternative. From 2020 to 2021, the percentage of Amazon sellers using FBM jumped nearly 10%. Though Amazon has updated the terms of its inventory limits, many sellers still find themselves with too much inventory for their allotted FBA storage.
Amid the supply chain challenges of 2021, 20% of sellers, pivoted to FBM, the report states.
"While FBA will likely continue to be the primary fulfillment method for Amazon sellers, FBM capacity is an important plan B," the report states.
Enabling more discounts for small items and adding flexibility for large packages has the knock-on effect of creating further incentives for sellers to choose FBA.
These aren't the only inventory-related changes Amazon made in recent months.
In December 2021, FBA reduced the threshold for its Inventory Performance Index so that "less than 10% of sellers will have storage volume limits." It also said it increased restock limits during the 2021 holiday season, enabling sellers to replenish their quantities of goods. It added that it intended "to do the same for many more sellers early next year.”
Starting on April 28, Amazon will implement a 5% surcharge on FBA orders to account for fuel and inflation. The company characterized it as a temporary move when it announced the surcharge on April 14. This came after it made permanent changes to fees to account for rising supply chain-related costs in January.
FBA sellers will also be the first to be able to participate in a new program that allows merchants to offer Prime benefits when selling through websites beyond Amazon.com. Buy With Prime allows merchants to offer Prime’s next-day delivery, free returns and checkout to members through a button that can appear on other websites. When it unveiled the program on April 21, Amazon said select FBA sellers will be the initial participants, with others following during the rollout this year.
With all of these changes now in place, sellers will make changes accordingly.The Current will continue to monitor their impact.
The company is pulling back after breakneck pandemic expansion. Will it sacrifice the shopping experience along the way?
Amazon is in a period of rebalancing.
The company has long scaled at a relentless pace as it sought to not only provide a marketplace for commerce, but the infrastructure that enabled it, as well. Amazon found another level of overdrive over the last two years, as demand spiked to unseen heights during the pandemic and the company tried to build to keep up.
This wasn’t necessarily a period that saw the kind of invention that Jeff Bezos made an existential tenet of the company, but it nonetheless seems to be shaking out as a cycle that included risk and fallout.
In this case, the risk was not a new device like a smartphone or a move to bend the future to Amazon's will like drone delivery. Rather, it was an expansion that took its already-vast operations to new heights.
Nowhere was this more evident than the company’s logistics network. As CEO Andy Jassy described it to analysts Thursday on an earnings call, the company doubled the size of a fulfillment network it took a quarter-century to build in two years. It also built out a last-mile delivery network that was the size of UPS, which is one of the top two carriers in the U.S.
In 2022, all of that expansion ran into 40-year-high inflation, war in Ukraine and a pullback in demand for goods amid reopening. The company first admitted the problem: It had overbuilt.
But the solution is not to tear down. It had to keep expanding as only Amazon does, while still cutting back in a period of “belt-tightening,” as executives have put it.
That’s evident in watching developments out of the logistics network alone. Amazon pulled out of some areas, and canceled plans to expand into some new warehouses. Yet, as Business Insider reported, it still added 79 million square feet – a footprint that is equal to half of next-closest competitor Walmart’s entire distribution network. It is also expanding Buy with Prime, a new program that will allow direct-to-consumer brands to offer Prime benefits, and, by extension, access to Amazon’s logistics network. Another service, called Amazon Warehousing and Delivery, is designed for upstream storage, necessitating more space to be made available in the network.
At the same time, it will seek to keep doing more for consumers.
Jassy indicated as much when he was prompted to outline his priority areas. Beyond cost-cutting, he said speed is the second highest priority for Amazon. As if to conform this, he said later in the call that one-day shipping is getting off the ground in North America.
Selection is another priority area. At Amazon, that phrase translates to a few things, but top of mind is “expanding the third-party seller marketplace.” Third-party sellers accounted for 59% of sales in Q4. Beyond sales, Amazon’s work with the sellers who post their products on the marketplace is also lucrative for the company. Amazon allows these sellers to tap its logistics network to offer Prime through the Fulfillment by Amazon program. Its business segment called third-party seller services grew 20% year-over-year in the fourth quarter, right in line with the massively profitable cloud computing division Amazon Web Services.
Price, Jassy said, is another area of importance, especially with the consumer pullback on discretionary purchases being observed amid inflation.
“I think pricing being sharp is always important,” Jassy said. “But particularly in this type of uncertain economy, where customers are very conscious about how much they're spending, having the millions of deals that we put together with our selling partners in the fourth quarter was an important part of the demand that you saw.”
Finally, Jassy cited a priority of improving the customer experience. He said Buy with Prime would give subscribers the ability to use their benefits across the web, and noted that virtual try-on for shoes brings change to the shopping experience.
But it’s in this area that the tradeoffs that may be happening under the surface may rear their head again. GlobalData Managing Director Neil Saunders noted that online shopping generally is becoming “more difficult" on Amazon.
“While the Amazon marketplace is far from a terrible place to shop, it has become more complex and cluttered with a multitude of products, delivery options, and prices levels for shoppers to sift through,” Saunders wrote in note released at the time of the earnings call. “The result is that impulse buying has dropped and that more people are migrating away to other retailers. This is not yet a serious problem as erosion has only happened at the margins, but it is something Amazon will need to address and arrest to prevent further decline.”
Taking a rhetorical step further, the journalist John Hermann wrote this week that a “junkification” of Amazon is taking place, while arguing that “everything is going according to plan" for the company.
He placed the growth of the third-party seller marketplace at the center of this trend. But it also comes as Amazon grows its advertising business, with many taking note of a growing number of ads on the platform. The company also wants to keep growing Prime, and is now using content such as Lord of the Rings and NFL’s Thursday Night Football as key acquisition channels. Both had “record” signups of new Prime members, CFO Brian Olsavsky said.
“We see a direct link between that type of engagement and higher purchases of everyday products on our Amazon website,” he said.
It will have to do each of these things at once, while entering a period that will require it to be “more targeted with its growth ambitions,” as Saunders put it.
"Since its inception, Amazon has had a culture of throwing dollars at many different things to see where they led and what they could learn," Saunders said. "That approach worked well for a younger, fast-growth business. It works far less successfully for a more mature entity. In our view, management deserves credit for recognizing this and quickly responding. However, the shift requires a lot of care because Amazon needs to find a new balance between being ambitious and innovative and being more frugal with its spending – which will be very challenging."
Jassy said the changes of the pandemic made its logistics a "different network." That may be true of the whole company. Rather than an isolated cycle of overbuilding and pulling back, this may prove to be a period that changes Amazon altogether. The bets will still be there, but the risk will be magnified with fewer dollars that don't pay off to go around. As hinted by the logistics buildout of the pandemic and even Buy with Prime, they also may look more operational.
Less delivery robot, more delivery optimization.
As Jassy put it: “We're going to be very thoughtful about how we streamline our costs, and I think you see a lot of that, but we're also going to continue to invest for the long term.”
The recipients of those investments will say a lot about where it wants to head in this next year.