By Laura Stevens
Amazon.com Inc. has a holiday message for the millions of merchants who rely on it to fill their online orders: Don't clutter its warehouses with stuffed Easter bunnies, Fourth of July banners or other out-of-season goods.
Though the big online retailer has built more than two dozen new warehouses this year, increasing its square footage by 30%, it says it needs all the space it can get to cope with the annual boom in holiday orders. That is why it is trying to discourage its third-party sellers from stocking up on items that aren't likely to sell by the end of the year.
"We're trying to incentivize sellers to wait to send us the Easter-themed cookie cutter sets," said Cynthia Williams, vice president of Fulfillment by Amazon, the service that stores sellers' products and ships their orders to customers. Last year, 600 such sets arrived in the fourth quarter.
Hoping to avoid similar incidents this year, Amazon, for the first time, is charging its sellers a premium for storing merchandise in its warehouses during November and December. It is partly offsetting that increase by lowering its fees for fulfilling orders, another way to encourage sellers to avoid items likely to linger on its shelves.
Amazon executives say that its warehouses overflow with third-party sellers' goods, especially as Christmas nears, straining its capacity and increasing costs. In recent weeks, the company has temporarily stopped accepting shipments from new sellers. Established sellers are required to time their shipments to arrive by Nov. 9 to guarantee they will be available for the crucial post-Thanksgiving shopping weekend and by Dec. 2 to be available in time for Christmas. For the third time this year, Amazon also offered to remove sellers' goods from its warehouses free of charge for disposal or return.
The idea is to speed the flow of goods and optimize use of space, Amazon's chief financial officer, Brian Olsavsky, said last month on an earnings conference call.
Brad King, whose online apparel retailer Webzom sells via Amazon, said his costs for using Fulfillment by Amazon might rise 30% over the holidays, based on preliminary calculations. In response, he said, he is making more frequent but smaller shipments to Amazon of the about 6,000 products he sells through that service, instead of the large shipments he previously made every 90 days. "We're trying to be more efficient in what we're sending," he said.
Amazon says about a quarter of the merchandise sold onits site are part of its fulfillment program, which charges storage fees based on volume. Starting this month, storage fees for standard-size items are due to more than triple to $2.25 per cubic foot a month, up from 54 cents the rest of the year.
A seller with 500 small Easter baskets in stock, for example, would pay storage fees of about $124 in November, up from $30 a month the rest of the year. At the same time, Amazon is lowering the cost of fulfilling those items by 5% to $2.88 per unit, to help offset some of the storage increase.
Amazon said it makes considerably more when its fulfillment customers make a sale than when their goods languish, racking up storage charges.
"The more the inventory turns, the more fees they drive," generating revenue, said John Haber, chief executive of supply-chain consulting firm Spend Management Experts.
Most sellers will likely struggle to fully understand the impact to their bottom line until after the holidays, said Eric Heller, chief executive of seller and brand-strategy consulting firm Marketplace Ignition. "There's so many moving parts," he said. "It's going to take sellers a month or two of evaluating their sales to understand."
The temporary increase in storage fees marks one of Amazon's first experiments with surge pricing -- charging more for goods or resources when demand is highest. Other companies, including package-delivery giant United Parcel Service Inc. have introduced some peak surcharges. UPS's is to encourage shippers to make more accurate predictions of their package volume.
Jordan Malik, who sells everything from shampoo to used books on Amazon, said that the prices consumers pay on Amazon's site typically get a lift during the holidays, something that will help offset fulfillment price increases. Amazon typically takes about a 30% cut of his merchandise for storing, selling and shippingit when a customer clicks "buy."
"The people who grumble about the fee increases tend to be the sellers who kind of are ruining it for everyone else," he adds, including those leaving merchandise that won't sell sitting in Amazon's warehouses.
Still, even when the fees rise, most sellers will stay, he says. "Amazon is the big dog."
Write to Laura Stevens at email@example.com
(END) Dow Jones Newswires
November 04, 2016 05:44 ET (09:44 GMT)
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