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″(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:If 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″
(right click on the image above and say “Open Image in New Tab” to see a larger version of it)
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!