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A Closer Look at Amazon’s New FBA Storage Fees (March 2018)

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On March 1, 2018, Amazon announced new FBA Storage Fees that will be implemented over the next few months.  You can read the entire announcement here:  (sign-in to your Seller Central Account is required)  https://sellercentral.amazon.com/gp/help/help.html?itemID=201411300&

Here are the highlights (or should I say lowlights?):

Monthly Storage Fees will increase by 5 cents a month per cubic foot.  From January to September the fees will increase from $0.64 to $0.69 per month per cubic foot.  From October to December they will increase from $2.35 to $2.40 per month per cubic foot.  If you average out the monthly fee increases, it comes out to a 4.7% increase in regular monthly storage fees.

Long-Term Storage Fees (LTSF) will be changing a bit more dramatically.  In the past, LTSF were charged only twice a year – on February 15 and August 15.  The fees were only incurred on units that had been in storage for AT LEAST 6 months and then were doubled for items stored longer than 12 months.  This fee structure led to some interesting behavior patterns by FBA sellers.  For example, sellers would hold back some inventory in January and February and then send in a massive shipment in late February so that by the time the August 15 LTSF fees were calculated, that large shipment would not incur ANY LTSF since it hadn’t been in storage for at least 181 days just yet.  That effectively allowed sellers to avoid any LTSF until the next February 15 date rolled around, at which point their inventory had been in storage for almost 12 whole months!  The main issues for Amazon were now two-fold: the large shipments from FBA sellers to their warehouses in late February and late August were causing a backlog for the receiving departments, and the massive purging that most sellers underwent on February 14 and August 14 to remove older inventory placed increased stress on the fulfillment departments.

It’s economics 101 – people respond to incentives.  The incentives Amazon were using in the past apparently didn’t bring about their desired results, so Amazon went back to the drawing board.

After all, Amazon is in the SELLING business, not the STORAGE business.

In the new LTSF system, which kicks off on September 15, Amazon is seeking to decrease that bi-annual burden on their warehouses.  To accomplish this, they are removing the key dates of February 15 and August 15, and will start charging LTSF on the 15th of EVERY month.  If you have unsold inventory that is collecting dust for more than 6 months, the fees will start to kick in right away.  Sellers can no longer game the system by holding back on larger shipments.  And if you think you can get away with smaller books in your inventory, Amazon will start charging a $0.50 minimum fee on all inventory that is in storage for longer than 12 months.  These fee changes should smooth out the hectic weeks at Amazon fulfillment centers around mid-February and mid-August.

How will this impact the storage fees throughout the year for typical books?  Let’s take a look at two books – a typical softcover book and a large textbook.  with dimensions of 8.8″ x 5.9″ x 0.8″ (0.75 pounds), and a large textbook that measures 10.9″ x 8.9″ x 2.0″ (7.7 pounds).  Assuming you listed each book on January 1st, here’s how the old and new fees would be applied:

Book #1:  typical softcover that weighs 0.75 pounds with dimensions of 8.8″ x 5.9″ x 0.8″Screen Shot 2018-03-02 at 11.55.59 AM(right click on the image above and say “Open Image in New Tab” to see a larger version of it)

Note that the $0.50 minimum 12-month storage fee kicks in with the new fees.  If this minimum wasn’t there, your monthly LTSF amount starting in month 13 would only be $0.16.  Tricky move, Amazon!  Here’s a graphical interpretation of the above figures:Screen Shot 2018-03-02 at 12.09.31 PMIf you are moving your inventory within 12 months, the new fees will have a marginal impact on your overall costs.  If you are sitting on your inventory for more than a year, these fees should incentivize you to drop your prices or create removal/disposal orders to avoid paying these fees.

Book #2:  large textbook that weighs 7.7 pounds with dimensions of 10.91″ x 8.90″ x 2.01″
Screen Shot 2018-03-02 at 11.56.09 AM
(right click on the image above and say “Open Image in New Tab” to see a larger version of it)Screen Shot 2018-03-02 at 12.10.17 PM

Bottom Line:  I’ve said it before but it bears repeating: Amazon is in the SELLING business, not the STORAGE business.  Gone are the days of sending in thousands of long-tail books that are only selling for $10 and playing the “portfolio game” where some will sell and most won’t.  These fees will kill low-priced, high-ranked books.  If you have long-tail inventory, it’d better have a high price tag on it to absorb these fees, or you shouldn’t send it into the FBA ecosystem.

Here are some key takeaways:

  • Tighten up your sourcing parameters – if your business model relies on sending in $10 books with a 5 million rank, that model will no longer work.
  • Improve your pricing and repricing strategies – it may be time to invest in a repricing software, or hire a VA to help you out.  If you’re not pricing your inventory to move, it’s going to hurt at the 6-month and 12-month fee hikes.
  • Closely monitor your inventory turn rates – start tracking your weekly and monthly turn rates, to get a better picture if your sourcing and pricing strategies are working.  Turn rates are one of the 3 key metrics that you should be tracking regularly in your business.
  • Consider Merchant Fulfilling some of your inventory – Especially on your long-tail inventory that isn’t likely to sell for many months, consider setting up a shelf or two in your home and listing them Merchant Fulfilled.  This will help you avoid the increased fees, and if you’re profiting at least $20-$40 off of these high-value books, you won’t mind fulfilling them yourself.
  • What about the Prime price bump? – The Prime price bump exists because of a disparity between supply and demand among sellers and buyers.  There are more Prime buyers than there are FBA sellers, which drives up the FBA prices in many titles relative to the competing MF offers.  As sellers adjust to these increased fees, we’ll see if more FBA sellers switch to Merchant Fulfilling their inventory.  If that happens, I would expect to see the Prime price gap widen in some cases.  If some of the larger bulk FBA sellers change their repricing guidelines, we may see the Prime gap get a bit smaller.  Only time will tell – but we’ll continue to monitor the market to see how it adjusts, much like we did in 2017.

Remember, if you’re selling your inventory within 6-12 months of when you list it, these new fees won’t hurt as bad as if you sit on your inventory for more than a year.  Most booksellers typically sell 50%-75% of their inventory within the first 6 months, so these fee changes should only come into play on a small portion of your overall book portfolio.

One final change that Amazon is implementing is they are removing the inventory storage limits, but with a caveat.  In the past, new sellers could only send in 5,000 units into the FBA program unless they hit certain sell-through rates several weeks in a row.  The work we did to get our limits bumped up from 5,000 to over 11 million is now in vain!  As long as your Inventory Performance Index (you can find this in Seller Central, on the homepage) stays above 350, you can send in as much inventory as you’d like.  If your Index drops below 350, Amazon will impose storage limits on you until you raise your index.  If you’re efficiently managing your inventory, this is great news to you if you’re looking to scale!

So how will these fees impact you in the year ahead?  Will you start Merchant Fulfilling more inventory to avoid some of these fees?  Hopefully the detailed information above helps quantify the actual impact of these fee increases.  Comment below with your new strategies in 2018!

32 Comments

  1. This is a really great synopsis, thanks

  2. Great info Caleb!

  3. Where is this Inventory Performance Index in Seller Central?

  4. The two oldest books in my inventory were both created last March. One is at the lowest price of $42.. Everything else was created in August forward.

  5. Thanks for breaking this down in Layman’s terms and the detailed graph is extremely helpful!

  6. Couldn’t do it without you Caleb.

  7. Very helpful Caleb, thanks for taking the time to break it down for the common man.

  8. Yes, thank you, especially for the charts! Receiving the Amazon email plus splitting up the shipments just about drove me over the edge this week, so decided to take the big leap into Merchant Fulfillment selling. It will take me a couple months to transition so will let you know how it goes . . .

  9. Thank you for the post, very helpful analysis

  10. I didn’t chart it out like you did for us (thank you!) but I had already come to the conclusion to source even better books, price competitively to sell as many as possible in under 6 months, and to MF a handful of books. In my area, it seems every time I turn around I see a new scanner, maybe this will discourage some of them!

    • I think it’ll take some time for people to cut and run – they won’t realize they aren’t making as much money until a few months from now, and that may cause them to rethink it. You’re spot on about sourcing better inventory though!

  11. Thank You for the analysis. It clears up the fee clutter, so we cab see $$$ break points.
    SUGGESTION: Does AZ have a report by Book Name / Seller SKU or their asin. ???
    It would allow sellers to quickly & easily see duplicates or triplicates of a book in their inventory — for selective weeding and or repositioning of books.

    • Amazon has the Inventory Health Report, which breaks out your inventory by MSKU. It also shows the ASIN, so you could create a Pivot Table and find duplicates that way.

  12. Thank you for the article.

    “The main issues for Amazon were now two-fold: the large shipments from FBA sellers to their warehouses in late February and late August were causing a backlog for the receiving departments”

    Did you get this information from AZ or is this what you figure AZ’s reasoning is?

    Because one of the most frustrating aspects of this LTSF change and the previous single ASIN exemption LTSF change is that Amazon announced it immediately *following* the LTSF clean-up date. AZ could have made this announcement 2/1/18 or earlier if their intent was to reduce a backlog following 2/15. But given the timing of the announcement on 3/1, it appears that AZ timed the announcement to increase LTSFs for 2018 more so than to reduce backlog.

    Also, there may now be a receiving back log after the 15th of every month with the new arrangement, albeit much smaller than the 2/15 or 8/15 back log.

    • I don’t have any inside info from Amazon – I’m just taking an educated guess based on what I’m observing. You’re right that we’ll see minor bumps around the 15th of each month, but that should be much smoother for Amazon than massive rushes twice a year.

  13. Will this cause FBA booksellers to send their books in as close as possible to the August peak? Will there be delays at those warehouses like sometimes happens in Q4 so that it might not work out so well to try to “just in time” it? If people did that will that increase the prices for books that sell in the small May-June bump? Will prices drop more significantly in January as people try to dump their books? Or is it possible to create removal orders for them after September and then send back those you think will sell in January? If you wait more than two cycles to sell (if you thought you could sell them the following Sept) you might get really caught as the books age out. Just a few thoughts; love to hear your feedback on any or all. Thanks.

    • I don’t think it makes sense to sit on books and try to time the market. The new fees don’t impact storage fees much (compared to current fees) until the books have been in storage for more than 12 months. Timing the market to catch two textbook seasons (August and January) may make sense, but not if you’re sitting on the books from February through August to do this. What’s your storage space in your home or garage worth? What are you missing out on by not sending the books in for several months?

  14. Thanks for the article.

    Last time Amazon changed the LTSF scheme FBA booksellers started selling their old FBA inventory for basement bottom prices and it took a while for that glut to clear out. I remember having a harder time finding FBA books that were profitable for months until some of that glut began to clear. Now Amazon has done it again except this time will be much worse albeit shorter lasting. The glut of cheap books will last until right before this policy goes into effect and then hopefully the majority of FBA book sellers will begin to remove their old inventory.

    With respect to what Marge pointed out in her comment, I agree a new strategy will be to hoard your books during the spring and summer and then send them all in just prior to the July/August textbook season. That way you get the fall textbook season, Christmas and the winter textbook season before you start hitting the increased LTSF for books 6 months and older. The problem with this (maybe) is trying to figure out pricing and how many copies of a certain book will be in inventory in late July or August.

    (Note if you could keep track of historical inventories and somehow report that in the app that might be useful. For example in the settings you pick a three month window and the app will display last year’s average inventory levels for each of those three months. That way you could see how much inventory will increase in the months ahead and get a gauge on how much sell-through there will be as well. I’m guessing you’d probably have to track that data yourself every year and implement the feature for the first time next year).

    This new LTSF policy is going to encourage a lot more small sellers to just give up the FBA book business model which means prices should actually increase in the long run for FBA books (that Amazon isn’t selling <–seems to be a lot of them).

    I have to be somewhat skeptical about the future of FBA books though. It seems clear (and you pointed this out in your article) Amazon doesn't want slugs in their warehouse and the majority of books are slugs. Next year Amazon will again raise their FBA fees and will roll out a new policy to further increase the difficulty of selling books via FBA (that's my speculation).

    Just two weeks ago I had Amazon try to get me to send my books to 10 (yes ten) different fulfillment centers. The worst split shipment I've ever had prior to that was three. Some of the boxes had two, three or four books in them. I can't justify sending in two books in a box. I haven't sent in any since then.

    I'm not confident I will be able to stay only FBA. As you pointed out in your article sellers might have to migrate some of their inventory to FBM. I'm not sure I want to deal with Amazon's customer base as an FBM seller. They are conditioned to return a lot more merchandise (just like Wal-Mart did with their customers in the 70's and 80's). That's good for Amazon and OK for large/full-time sellers but not so good for small/part time sellers.

    I've wanted to migrate away from only books for a while so now I have more incentive to do so. We'll see what happens in the coming months.

  15. Great summary Caleb. Thank you!

    Cheers,
    Andrew

  16. This was a huge help for me today; had to slow things down the past month due to family issues…I knew something changed with LTSF but couldn’t remember what it was. Thanks for providing this article!!!

  17. Caleb I’d be interested to know your opinion on what I can do about a dropping inventory index score due to slow book turnover. The vast majority of my books are under million rank, and even with dropping prices I can’t get them to move fast enough. As a bookseller, should I just get used to seeing a lower index score?

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