Amazon’s new seller fees likened to ‘kick in the gut’

Amazon.com Inc. merchants have found themselves caught in an economic vice.

Earlier this year, the e-commerce giant rolled out changes to the fees its charges them — essentially shifting more of its operating costs onto the small businesses that account for most of the products sold on the site. Making matters worse for merchants, shoppers are trading down.

In the first four months of the year, U.S. consumers have increasingly opted for the least expensive products in nearly all categories, according to a report released Thursday by Adobe Inc. That makes it harder to pass price hikes along to shoppers.

Duncan Freer, who sells weighted blankets and sleep masks on Amazon, expects his profit margin to slide to eight per cent from 20 per cent as a result of the new fees. One, imposed in March, charges a levy on shipments sent to the company’s fulfilment centres. That will drive the cost of shipping two pallets of Freer’s products to Amazon to more than $800 (U.S.) — up fourfold from what it cost him in October, he said. Amazon reduced the cost of fulfilling each customer order, but Freer said it only partially offsets the new fees.

“Amazon just keeps grabbing more and more,” said the Chicago businessman, whose sales on the marketplace amount to about $500,000 a year. “It’s like a kick in the gut.”

Amazon said the new fees are intended to reflect its own cost of distributing inventory around the U.S. so more items can be delivered in just one day, which helps boost overall sales for online merchants. Some fees actually went down. In January, Amazon cut commissions for sellers of low-cost apparel.

“When we announced these new fee changes in December, we estimated that sellers will on average see an increase of $0.15 per unit sold, which is significantly less than the average fee increases announced by other fulfilment service providers,” company spokesperson Mira Dix said in an emailed statement. “As sellers are adapting to these changes we have seen that the actual impact is even lower, and many more sellers are seeing a decrease in the average fees that they are paying to Amazon.”

Still, many merchants say Amazon is mostly benefiting from the higher fees, an assertion reflected in the company’s earnings. Revenue from seller services, which includes the popular Fulfilment by Amazon logistics operation, increased at a faster rate than fulfilment expenses in each of the past seven quarters. Amazon’s seller services revenue of $34.6 billion for the period ended March 30 was up 36.5 per cent from two years earlier, more than triple the pace of growth of its fulfilment costs, which were $22.3 billion in the period.

San Francisco seller Neil Ayton sells golf yardage books, yoga gear and pickleball equipment. One of his most popular products is a yoga stick practitioners use to stretch. It was 59 inches, the longest it could be to avoid a higher fee tier. Earlier this year, he noticed Amazon cut the size limit, and suddenly his yoga sticks were one inch too long. Shipping costs jumped and Ayton began losing $3 per sale. He recalled hundreds of yoga sticks and trimmed each one, but said doing so merely minimized his losses. Now he plans to wind down his Amazon business.