Sellers who use Fulfillment by Amazon consider their options after a fee hike notice

 BY SANDRA GUY Senior Editor

Retailer clients will pay more than double this holiday season to have their products in Amazon’s facilities, and that will force some to be more selective and strategic about how much inventory they ship and when.

Amazon.com Inc.’s decision to sharply raise storage fees during the holidays is spurring at least three e-retailers who use Amazon’s fulfillment service to be more strategic about shipping inventory. But those retailers say surge pricing—higher fees for peak versus non-peak seasons— won’t change their day-to-day businesses.

Amazon this week notified  merchants that it will adjust the storage fees it charges sellers who use Fulfillment By Amazon, the service whereby merchants selling on Amazon’s marketplace pay Amazon to store and ship their goods for them. Amazon will lower those fees in October and more than double them in November and December to try to thwart retailers from piling up goods in its fulfillment centers before they’re sold.

For October Amazon will charge merchants who use Fulfillment By Amazon 54 cents per cubic foot to store standard-size products and 43 cents per cubic foot for oversize products, consistent with the fees it’s charging January-September of this year. In November and December, the corresponding fee will jump to $2.25 per cubic foot for standard-size products and $1.15 per cubic foot for oversize products, up 212.5% and 101.8% compared to the fee of 72 cents and 57 cents, respectively, charged in the same months of 2015.

The change will mean a noticeable increase in costs, so e-retailers will have to swallow the extra expense or pass it on to consumers, says Aaron Leon, founder and CEO of printer ink cartridge retailer and manufacturer LD Products Inc., No. 253 in the Internet Retailer 2016 Top 500 Guide.

Leon says he will be “a little more cautious” to ensure inventory doesn’t sit in an Amazon warehouse. “Most likely, this makes Amazon a less profitable marketplace for sellers,” but sellers have few options, he says.

Amazon (No. 1) did not respond to a request for comment.

Many retailers will have to get smarter and more selective about what they send through Fulfillment by Amazon, says Scot Wingo, executive chairman of ChannelAdvisor Corp., which facilitates sales on Amazon, eBay Inc. and other online marketplaces for its retailer clients.

Sellers who don’t invest in doing so will see their fees go up as much as threefold, he says. “Sellers need to get in front of the curve on this and have a deep understanding of which products are most appropriate for FBA; how they tie Amazon to their supply chain to optimize the situation, and how they will manage shipping to non-Amazon channels in this new, more expensive FBA world,” Wingo says.

Laptop and tablet accessories e-retailer LapWorks Inc. has worked with six fulfillment companies in its 16-year history, and no one does the job better than Amazon, especially for a small, home-based business like his, owner Jose Calero says. LapWorks sells its products through eBay, Amazon and its own e-commerce sites, Heldtite.com and Laptopdesk.net.

The e-retailer’s profit margins are sufficient to cover the extra cost, he says. “We may ship some items earlier than usual, but overall it’s business as usual,” Calero says.

David Heacock, founder and CEO of air-filter maker FilterBuy.com, says the changes won’t affect his business much and he welcomes the new policy because it raises the bar to do business with Amazon, especially during the holiday season. He says Fulfillment By Amazon was originally intended as a short-term inventory solution to deal with items that manufacturers and retailers shipped on a just-in-time basis to customers.

“I believe this is a reaction by Amazon to all of the new entrants without a physical presence,” Heacock says. Many of those online retailers buy items in bulk from overseas and stuff them in Amazon warehouses, whether the items are selling quickly or not, he says.