Amazon Retail: The Rails of E-Commerce
Is e-commerce a good business? Can a company consistently ship ~$15 parcels with free delivery within 24 hours and make money? E-commerce profitability seems to be the center of the argument for AMZN sceptics we speak to. Investors question whether heavy investments in fulfilment centers will yield sufficient returns.
After interviewing an AMZN 3P seller, with 16 years experience scaling small brands and running AMZN 3P accounts for large Fortune 100 brands, we published our analysis exploring the history of AMZN’s Retail Marketplace Strategy, its underlying economics, and offer a new lens to view the business as Retail Infrastructure as a Service.
Over the last year, AMZN hasn’t been the only one struggling to make e-commerce profitable. Its sellers are too:
With Amazon FBA, it’s 15% listing fee, 15% FBA fee, plus your storage fees, plus various return fees and things like that; hidden fees. They raised the fees this year, in January, then they implemented a fuel surcharge, and then they just implemented a surcharge for the fourth quarter for warehouse expansion…so all these fees build up to the point where we have one client who was on FBA for years and we pulled them off FBA. They can actually build their own warehouse, staff it, handle their own pick, pack and ship for less money than they can with FBA. - 3P FBA Seller
FBA sellers can pay up to 60% of sales to AMZN. This excludes the product cost. A sellers’ COGS has to be below 35-45% of sales to earn money selling via FBA.
Bears argue this becomes self-selecting; 3P sellers can only afford to supply the higher-margin products and therefore leave lower-margin items for AMZN to sell 1P.