| | | Amazon Has Too Many Warehouses. Now Sellers Are Paying More
In Suzhou, China, online toy shop owner Cameron Walker relies on Amazon to ship nearly a million packages for his business every year. The 42-year-old’s toy business, which designs and manufactures toys and craft materials in China and then sells into English-speaking markets including the UK, US, and Canada, has been running on Amazon’s third-party fulfillment service, Fulfilled by Amazon (FBA), since 2016. (Walker asked WIRED not to disclose the name of his business because successful businesses on the site are often attacked by competitors who report fictitious issues to Amazon to try to decrease their standing online.)
“We’re almost exclusively through Amazon, something like 90-plus percent,” he says. The business is in the top three of the biggest child-focused arts-and-crafts brands on Amazon in the UK, and amongst the top in the United States and Canada.
“It’s an awesome scaling program,” he says. “For a minimum amount of money, you can scale a business with almost no infrastructure.”
Walker is almost wholly reliant on Amazon’s warehouses and shipping capabilities, leaving him to handle product design, manufacturing, and marketing. He hasn’t considered any alternatives or competitors. “That was the plan from the beginning,” he says, “because it’s the easiest.”
But easy doesn’t come cheap. When Amazon announced it had built or bought $2 billion too much warehouse space, Walker and other third-party FBA customers received a letter. In the UK, it said that their FBA fees would be rising 4.3 percent due to a “fuel and inflation surcharge.” In the US, where the price hike took effect slightly earlier, it was deemed necessary “to partially offset the higher permanent operating costs we face going forward.”
The FBA service allows third-party sellers to store their products in Amazon fulfillment centers and offload picking, packing, shipping, and customer service to the online retail titan, as well as take advantage of Amazon’s Prime delivery service speed. It is used by many companies.
“With all the warehousing Amazon’s got, it makes it easier for them to do fulfillment, because they’ve already got products everywhere,” says Ben Graham, marketing operations manager at a nutritional supplements company called Toniiq. “They’re already running those lorries around and about, so it’s simple for them to say, ‘We’ll just ship it. It’s fine.’” But Toniiq is looking to draw down its reliance on Amazon, in part because it was attacked by a competitor, temporarily locking it out of Amazon and the FBA facility, and impacting its sales. The company couldn’t even fulfill orders made through its own website, because it used FBA for the process.
“You’re completely at the mercy of Amazon,” says Graham. “It makes it harder to offer any kind of value. You end up with significantly lower margins on Amazon than you would offering the products on your own website.” The ecommerce giant is cheaper than many competitors, Graham admits, but its dominance means that when price rises come in, it’s Amazon’s way or the highway.
“In 2022, we expected a return to normalcy as Covid-19 restrictions around the world eased, but fuel prices and inflation have presented further challenges,” says Amazon spokesperson Dagmar Wickham. “It’s still unclear if these inflationary costs will go up or down, or for how long they will persist. Beginning May 12, we will implement a fuel and inflation surcharge of 4.3 percent on top of our current FBA fee per-unit rates in the UK, Germany, France, Italy, and Spain.” Wickham denied there was a connection between fee rises and Amazon’s spare warehouse space.
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