Any way you look at it, Amazon’s fulfillment arm, Fulfillment By Amazon (FBA), has an enormous warehousing footprint. It currently operates about 128 fulfillment centers in the U.S. alone – and that doesn’t even factor in Amazon’s many Prime Now hubs, Whole Food grocery DCs, delivery stations, and other distribution locations.
For Amazon sellers, using FBA simplifies things by handing over all fulfillment and customer service requirements to Amazon. But an increasing number of large sellers are growing disenchanted with FBA’s rising costs and are looking for FBA alternatives.
One such alternative is Amazon’s own Seller Fulfilled Prime program. The program allows qualified sellers (or the 3PL of their choice) to display the Prime Seller badge, while managing fulfillment themselves and meeting the Prime two-day shipping requirement.
We outlined some of the particulars of how you can qualify for SFP a few weeks ago. But now we’d like to tackle something that’s just as important: Taking a good, hard look at why you should.
With that in mind, here are five key reasons why many companies are migrating away from Fulfillment By Amazon (FBA). Do any of them ring a bell with you?
1. Rising FBA Storage Costs
Let’s start with the obvious: While Amazon is certainly in the warehousing business in a big way, its primary goal is to increase online sales revenue.
Quite clearly, the Amazon of today is less focused on warehouse expansion than it is on wringing the most value from its current space and removing slow-moving inventory. As evidence, consider this: In September 2018, the company changed its fee structure for slower-moving inventory so that companies get charged monthly, rather than semi-annually. In addition, Amazon recently introduced its Inventory Performance Index (IPI), a new measure that results in higher rates to store slow-moving SKUs. Just as important, Amazon may actually limit your ability to supply it with more products if your IPI falls below a certain threshold.
2. Limited Inventory Flexibility
Using FBA means you must commit a portion of inventory exclusively to Amazon so that it can deliver on its fast and free two-day Prime delivery promise. And that in turn means that your FBA-stored inventory isn’t available to fulfill any of your orders from channels other than Amazon, no matter how close those buyers are to an FBA facility that’s housing your product. All of that means you’ve got to carry more inventory (and incur greater cost) than you ordinarily would, or spread your non-FBA inventory far more thinly than you’d like. A pretty good reason, just by itself, to explore FBA alternatives.
3. Higher Compliance Costs
When you work with your own warehouse or a 3PL fulfillment warehouse, there’s usually a fair amount of flexibility about how product can be received. By contrast, Amazon has strict criteria for how products are shipped to its warehouses, with financial penalties attached for non-compliance.
There also can be significant extra costs associated with making sure that inbound shipments to Amazon meet various specifications in terms of pallet configuration, labeling, and the like – and in some cases, these expenses can be onerous. For example, a skin care company had its product arrive from its contract manufacturer six to a pack. Amazon informed the company that it would only accept 12-packs. As a result, the company had to incur heavy costs to re-package the product before shipping to Amazon. Technically, that doesn’t count as an “Amazon fee,” but the cost to repackage and negative impact on profit is the same.
4. Without Finding an Alternative to FBA, It Will Be Amazon’s Brand Experience, Not Yours
As a growing company, it’s natural for you to want your customer’s experience to be associated with your brand, especially if you’re trying to earn repeat business and establish a loyal customer base. But when FBA ships your product, that product doesn’t arrive in a box with your company’s name or logo. It arrives in an Amazon-branded box, which essentially makes the customer experience all about you-know-who.
To be fair, FBA is willing to ship your product out in blank boxes instead – for an extra fee. But like it or not, that’s the extent of your packaging “customization” options.
5. Uncertainty About Sales Tax Nexus
Tax nexus – the requirement for companies doing business in a state to collect and pay tax on sales transacted in that state – was once fairly easy to figure out before eCommerce, because it could be tied to physical store locations.
But thanks to eCommerce, it’s a bit less clear, because there’s currently no common legal agreement on state tax liability. And it’s even less clear if you’re working with FBA, because not only is your inventory distributed across multiple Amazon warehouses in various states, any order could be fulfilled from any of them, making it difficult to keep track of. Some FBA sellers worry that since they can’t control where Amazon puts its inventory they could conceivably be creating nexus in dozens of states.
More Reasons to Look for FBA Alternatives
There’s more we could add to this discussion – including seller frustrations about FBA’s reconciliation issues, inability to customize, and lack of responsiveness to smaller customers. You can read about some of these in our eBook: Is FBA Right for Your Business?
Meanwhile, if you’re interested in exploring alternatives to FBA, including Seller Fulfilled Prime, contact Amware. We’ll be happy to discuss the PROS and CONS of each Amazon fulfillment option as they relate to your business and situation.