Since the beginning of this year, Amazon has revised its fee structure, shifting more operational costs onto third-party sellers.
Simultaneously, overseas consumers are scaling back their spending. According to Adobe’s May report, American consumers increasingly seek lower-priced items online, especially in categories like personal care, electronics, clothing, home and garden, furniture, and bedding.
This trend makes it harder for sellers to raise prices. Shops that once had dozens of orders daily now see only a few. Facing declining profits and rising costs, many Amazon sellers are in a cash flow crisis, with some considering closing their stores.
The Struggles
For small and medium-sized sellers, tight cash flow and limited risk tolerance mean that any slight change can push their operations to the brink.
The increasingly complex and costly fee structure is overwhelming for many sellers.
According to a report, new inbound configuration fees will reduce profit margins for sellers of weighted blankets and sleep masks from 20% to 8%. Shipping two pallets of products to Amazon now costs over $800, a 400% increase from October.
In April, Amazon began charging additional fees for underperforming inventory, increasing storage costs for slow-moving products. This is particularly challenging for small teams, who often must reduce their inventory to simplify operations or create a dedicated department to handle the various issues, further increasing costs.
Shipping fees have also been adjusted, catching many sellers off guard. For instance, a San Francisco seller of yoga sticks found that the length of his 59-inch products just exceeded Amazon’s new size limits, increasing shipping costs from $10 to $26 per item. Consequently, he recalled hundreds of yoga sticks from Amazon’s warehouse and trimmed them by an inch to reduce losses, but he is now considering leaving the platform.
The situations of several sellers reflect the survival conditions of Amazon sellers in China. Especially after the inbound configuration fee took effect, many sellers have seen their profits decline to varying degrees.
Seller Li Tian explained that this fee has significantly impacted him, cutting his profits by about half. Not only him but also his peers are affected. Although the degree of impact varies among sellers, it is undeniable that over 90% of sellers will be hit. Medium and small sellers like him are apprehensive but have no solution.
Continue or Quit
Many sellers believe Amazon is primarily making money by increasing fees, a sentiment reflected in its financial reports. Over the past seven quarters, Amazon’s seller services revenue (including logistics operations) has grown faster than its shipping costs. As of March 30, seller services revenue reached $34.6 billion, a 36.5% increase from two years ago.
The sellers are struggling to cope with the rising costs, falling into a vicious cycle. Should they withdraw or remain stuck in a dilemma?
Amazon’s profit margins range from 10% to 30%, but a Shenzhen seller of bags miscalculated expenses and profits, resulting in losing money on every sale. “I initially planned to attract customers with low prices and gradually increase them. But as soon as I lower prices, competitors quickly appear with even lower prices, trapping you in a cycle where you can’t raise prices,” the seller said. After clearing the last of his inventory, he decided to exit Amazon.
Another seller from Fujian shared on social media that he improved his product category, ranging from over 300 to around 200, by lowering prices but at the cost of losing money on advertising and product costs. Despite investing about $150,000 to ensure quality, daily losses and rising shipping costs forced him to pause shipments and reassess costs, affecting his ranking and leaving him stuck between investing more or exiting.
Many sellers in the cross-border e-commerce industry face similar dilemmas. They invest substantial amounts of money only to see little progress, afraid of further losses if they continue, yet reluctant to quit.
Some sellers joke that starting a business on Amazon requires patience, extensive research on listing optimization and promotion, and a broad vision. “It’s normal to lose money initially; eventually, the company will go bankrupt,” one seller quipped.
Managing Rising Costs
Typically, Amazon sellers face product samples and bulk purchase fees, logistics and shipping, storage, return handling fees, on-platform and off-platform advertising costs, platform sales commissions, team salaries, office rent, operational equipment investment, store rental fees, and accounting fees. However, with Amazon’s policy adjustments, changes in storage and logistics services, and fluctuations in product procurement costs, sellers’ hidden expenses continue to rise.
Therefore, sellers must accurately estimate and update their cost data in real-time to prevent losses. Controlling costs becomes crucial for sellers, including strict monitoring and management of procurement, logistics, storage, and return fees.
For example, the newly added inbound placement fee illustrates this point.
Previously, when sellers sent inventory to FBA, they only needed to pay the shipping cost to the initial FBA warehouse. If Amazon deemed it necessary to distribute the inventory across multiple warehouses nationwide, they would bear these costs, which are essentially included in the fees sellers have already paid.
Now, the situation is different, and sellers have two choices: First, when sending inventory, sellers can send it to a single FBA warehouse and pay a placement fee for Amazon to distribute the inventory nationwide. Second, sellers can send the goods to multiple FBA warehouses, avoiding the inbound placement fee but incurring higher shipping costs.
Therefore, sellers must either save on shipping costs by consolidating all goods into one FBA warehouse and paying the placement fee or pay higher shipping costs to send goods to multiple warehouses. This may seem harsh for sellers, but it is an inevitable reality unless they choose not to use FBA services. Sellers must accurately estimate costs based on their situation and choose the most advantageous combination strategy.
In addition to precise cost control, effective advertising strategies, reasonable inventory management, and continuous product optimization are also crucial. These factors combined will determine whether sellers can succeed in the competitive market.