As fees change, Amazon brands are adapting to the new normal

Another fee that went into effect in March imposes an additional fee on shipments sent to the company’s fulfillment centers if sellers don’t split up inventory for shipping nationwide, something Amazon previously did for free. Another fee, which took effect in April, is levied on sellers when their inventory is too low. In fact, it caused such outrage among sellers that Amazon introduced a grace period on the fee to help sellers comply with it, as Modern Retail previously reported.

To offset some of the increases, Amazon has actually lowered some of its fees, including the cost of fulfilling orders. But that only partially offsets the fee changes, according to Rob Hahn, chief operating officer at e-commerce accelerator Pattern. He cited a West Coast supplement client whose shipping costs increased by as much as $0.55 per item while the FBA fee reduction was only $0.17.

“It may not seem like a lot, but for some sellers, that’s their entire profit margin,” Hahn said.

Taken together, frustrated sellers and the agencies they work with say Amazon is increasingly shifting the burden of operating costs onto small business owners. As a result, more and more Amazon brands are wondering how to adapt to this new normal. From changing product offerings to testing new platforms, sellers are trying to balance new fees and protect their profits while positioning themselves for future growth.

“Where we have made targeted interventions in the form of new fees, we are also seeing sellers adapt to and benefit from the changes,” Amazon spokeswoman Kadia Koroma said in a statement to Modern Retail. For example, retailers that have higher inventory levels have seen an increase in unit sales, Koroma said. Additionally, Amazon’s introduction of a destination fee gives sellers more control to reduce fees while allowing the company to distribute inventory closer to customers.

“In total, this year’s fee changes are significantly smaller than those announced by other major logistics providers, and many sellers will see a decline in the average fees paid to Amazon per unit sold,” Koroma said.

Still, customers pay the price for it. Craig Leslie, founder of The Bean Coffee Company, has gradually raised prices by about $2 a pound over the past five months. Like many sellers, the cost of raw materials – in Leslie’s case, the price of coffee beans – has increased as Amazon’s FBA fees have changed. Thirty-five percent of the 2,000 Amazon sellers surveyed by Jungle Scout cited rising goods costs as their top concern in 2024.

“We were forced to raise prices, and it wasn’t just Amazon’s fault, but it helped us absorb that additional fee increase,” Leslie said.

However, for many sellers, raising prices is not enough to stay in business. At a time when shoppers are more cost-conscious than ever, brands are trying to maintain prices by cutting spending wherever they can.

One way brands can achieve this is by narrowing their product catalog to simplify operations.

“If a brand has a lot of different product SKUs, they may need to narrow their inventory for Amazon because inbound advertising placement fees are very high,” says Lori Fields, founder of digital commerce agency Jay Street Partners.

A California hotel brand, which asked to remain anonymous to preserve its relationship with Amazon, said it had become too difficult to establish a new fee structure, especially when it came to managing inventory levels. As a result, the company limits its offering from 300 to 200 items to avoid guesswork.

For smaller companies, catalog sizes decrease. According to Jungle Scout, in 2023, the number of sellers listing just one product on Amazon increased by over 300% compared to the previous year.

According to Fields, the FBA changes could also discourage sellers from introducing new products, especially food and beverage sellers and anyone who sells products with frequent restocking.

“Let’s say you have five flavors. “Maybe you’ll just release three flavors because you just can’t handle all this inventory and all these costs,” Fields said. She added that some of her food and beverage customers are trying to bypass the destination fee by switching to Amazon’s Fulfilled by Merchant (FM) service for slower-moving products. This is a trade-off as these products will not be delivered at the best price, which can often lead to a decline in sales.

Sellers selling heavier goods on Amazon will disproportionately feel the brunt of fee changes, said Lesley Hensell, co-founder of Riverbend Consulting, which advises Amazon sellers. New York-based home goods client Hensell’s is limiting sales of heavier items via FBA. While the brand expects sales of such products to decline by 50%, it is still cheaper than running business as usual due to higher fees for bulky products.

More sellers may turn to other platforms for relief, according to Rob Hahn, chief operating officer of e-commerce accelerator Pattern. For example, a Florida sports and outdoor customer that sells products that tend to be larger in size recently started selling products on TikTok Shop, where sales fees are relatively lower.

“We had hundreds of sales very quickly,” Hahn said. “It’s quite a large product at a higher price point, so it was a surprising increase over something I wouldn’t describe as hugely successful on a platform like TikTok Shop.”

Twenty percent of Amazon brands said they plan to expand to TikTok Shop in 2024, according to Jungle Scout. More broadly, Amazon companies said expanding to more e-commerce platforms was a top priority for them this year.

However, for some sellers, FBA fee changes are simply a cost of doing business on the Amazon marketplace. They may even prove useful in helping you Amazon companies optimize operations.

In the case of The Bean Company, raising prices led to more sales than before. “I thought we would get some response, but it’s actually been the opposite, I think because we were a little underpriced to begin with, so we’re starting to see more units sold,” said Leslie.

As he put it, “It was hard to understand at first, but in the end my business will run more efficiently and that will make the customer happier.”