(Bloomberg) — Amazon.com Inc.’s merchants found themselves caught in an economic vise.
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Earlier this year, the e-commerce giant changed the fees it charges, essentially shifting more of its operating costs onto the smaller businesses that account for most of the products sold on the site. Worse still for traders, buyers are buying down.
During the first four months of the year, U.S. consumers increasingly opted for the lowest-priced products in almost every category, according to a report released Thursday by Adobe Inc. That makes it harder to pass on price hikes. prices on buyers, and online merchants are struggling to make money.
Duncan Freer, who sells weighted blankets and sleep masks on Amazon, expects his profit margin to drop from 20% to 8% because of the new fees. One, imposed in March, imposes a tax on shipments sent to the company’s distribution centers. That will bring the cost of shipping two pallets of Freer products to Amazon to more than $800, four times more than what it cost him in October, he said. Amazon reduced the cost of fulfilling each customer order, but Freer said that only partially offset the new fees.
“Amazon just keeps grabbing more and more,” said the Chicago businessman, whose sales on the marketplace are about $500,000 a year. “It’s like a kick in the gut.”
Amazon said the new fees are intended to reflect its own inventory distribution costs in the United States so that more items can be delivered in a single day, helping to increase overall sales for online retailers. Some fees have actually decreased. In January, Amazon cut commissions for sellers of low-cost clothing, a move interpreted by retailers as an attempt to weaken competition from Chinese fast-fashion startup Shein.
“When we announced these new fee changes in December, we estimated that sellers would see an average increase of $0.15 per unit sold, which is significantly lower than the average fee increases announced by other service providers order processing,” said company spokeswoman Mira Dix. a statement sent by email. “As sellers adapt to these changes, we’ve found the actual impact is even smaller, and more sellers are seeing a decrease in the average fees they pay to Amazon.”
Still, many merchants say Amazon mainly benefits from higher fees, a claim reflected in the company’s profits. Revenue from seller services, which includes the popular Fulfillment by Amazon logistics operation, has grown at a faster pace than fulfillment expenses in each of the last seven quarters. Amazon’s seller services revenue of $34.6 billion for the period ended March 30 was up 36.5% from two years earlier, or more triple the rate of growth of its execution costs, which amounted to $22.3 billion over the period.
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