Multi-Channel Fulfillment (MCF) costs are increasing – is Fulfillment by Amazon (FBA) next?
What will happen with 1P brands and vendors currently under negotiations with Amazon?
It’s almost the end of April 2023 and time for some reflection and honesty. Let’s face it, 2023 has been challenging so far. We’ve seen layoffs at most of the large incumbents (Amazon, Microsoft, Meta, Google, and others), inflation, while virtually all businesses are looking for cost savings at every customer touch point.
So what does this all mean for Amazon 3P sellers and 1P vendors? In the simplest terms, it means higher expenses and difficult negotiations. MCF has already seen a price increase and it’s likely it will be even more expensive as we approach Q4.
Amazon will no doubt use Prime Day to demand more deals from brands of all shapes and sizes and will likely also use the always-crazy fourth quarter as another inflection point to increase costs associated with shipping, warehouse space, etc.
Brands and vendors are almost certainly facing a year in which Amazon only gets more (and more) expensive.
What can you do to manage these costs?
Frequent readers of this blog know how much emphasis we place on brands possessing a thorough understanding of their unit economics. Use that data (again, at an ASIN level) to negotiate as hard as possible with Amazon to ensure you have some protective measures related to margins and profits.
Throwing your hands in the air if you just don’t care is simply enough. We get it.
Brands are in a tough position, is Amazon nothing more than a necessary evil? Hmmm, where else (besides Amazon) can you sell as many units, reach as massive of a purchasing audience, and generate as much revenue as you do today, selling via Amazon?
The answer is nowhere. Currently, no other platform as powerful as Amazon exists.
But fear not, we suggest using 2023 as the year in which you remove those non-performing ASINs from your Amazon account and begin to sell via other channels such as your Direct-to-consumer (DTC) website. If you’re smart, and we have faith in you, you should also leverage Buy with Prime (BwP) to reach as many of those 157 million plus Prime members.
Be strategic about the new products you add to the mix on Amazon. Does this product generate enough margin and profit for your business? If the answer is no – do not list it.
For lower-priced products (less than $50 per unit) bundle them together to grow your average order value (AOV). And in case you missed the memo, selling any item for less than $10/unit on Amazon is akin to throwing money away. Your order volumes would need to be MASSIVE to generate a profit.
In addition, our internal research has shown that in many cases sellers are competing against lower pricing from sellers from completely other markets, like those where sellers can survive with either smaller labor needs and/or pay for more staffing at lower costs.
Getting into an Amazon price war with these brands will not end well.
Do you have a “leaky” Amazon sales channel? Are you competing with a roster of unauthorized resellers selling your product on, or to Amazon? If so, talk to us about creating and implementing an authorized reseller program. Do it now!
Have a plan! Ensure that you have an ironclad minimum advertised price (MAP) policy for your distributors and resellers. Also, ensure that your manufacturing partners are contractually prevented from reselling your products to, or on, Amazon. Competing against your own partners is a recipe for migraines and diminishing returns!
Bottomline: Brands/sellers should control as much of their brand and product Amazon ecosystem as possible! Accentuate the positive and do everything in your power to ensure that Amazon’s impending cost increases (winter is coming!) do not effectively kill your best-selling products or business.
We’d very much like to hear about your marketplace pain points and serve as your guide on this journey. Let’s get started – reach out to us today.