Amazon has increased FBA fees to offset issues that are also costing Amazon brand owners. These include a return to in-person shopping, increased labor costs, and supply chain issues. These added fees may increase Amazon’s bottom line in the short term, but whether they will price out some small businesses remains to be seen.
At their recent Q3 earnings conference, the top and bottom lines of Amazon’s e-commerce segment fell short of Wall Street’s expectations. There were three main drivers of this miss: 1) consumers returning to their old (in-person) shopping patterns, 2) increased labor costs, and 3) supply chain disruptions. Hefty profits from AWS prevented the company’s consolidated bottom line from experiencing major losses.
But Amazon may have found a new solution to its e-commerce struggles: increasing FBA (Fulfilled by Amazon) fees. Morgan Stanley’s Brian Nowak believes that changes in this fee structure could generate an extra $1 billion of EBIT.
Sending fee revenues straight to the bottom line
FBA is Amazon’s storage and logistics service for sellers. Businesses dispatch their merchandise to Amazon fulfillment centers. Then, when a customer makes a purchase, Amazon packs and ships the order. Finally, businesses receive the sale value of the order, minus a fee for FBA services.
The bad news for sellers, but the good news for shareholders, is that this fee, which has historically been in the 2-3% range, will now be hiked to 5.2%. Mr. Nowak estimates FBA fees generated $45 billion in revenue in 2021.
Factoring in 18% business growth and sticking with the 2%-3% fee rate, Amazon could expect $54 billion in revenues for 2022. But the new 5.2% rate would result in an additional $1 – 2 billion in revenues, $1 billion of which would flow directly to EBIT.