There is a good chance that the last time you bought something on Amazon’s website, it wasn’t actually sold by Amazon. It instead came from an independent merchant, and Amazon just handled the logistics of getting the item to you. That arrangement has an implication that I never considered until a recent Wall Street Journal article (Amazon Prods Its Sellers to Free Up Warehouse Space, Nov 4): By inviting in the additional sellers, Amazon is giving up control of just what is in its fulfillment centers. If a merchant wants to sell miscellaneous crap, that is their business. At the same time, however, that miscellanea potentially ties up space that Amazon needs — or at least could use more profitably on other items. This is particularly true as we head into the holiday season when Amazon should reasonably expect business to be booming.
What is a poor e-commerce giant to do?
How about a little surge pricing?
“We’re trying to incentivize sellers to wait to send us the Easter-themed cookie cutter sets,” said Cynthia Williams, vice president of Fulfillment by Amazon, the service that stores sellers’ products and ships their orders to customers. Last year, 600 such sets arrived in the fourth quarter.
Hoping to avoid similar incidents this year, Amazon, for the first time, is charging its sellers a premium for storing merchandise in its warehouses during November and December. It is partly offsetting that increase by lowering its fees for fulfilling orders, another way to encourage sellers to avoid items likely to linger on its shelves.
The actual increase in storage costs are awfully steep. For some items, the holiday costs are going to be three times higher than last year and more than four times higher than what Amazon will charge from January to September.
On the one hand, these rate increases verge on being punitive. On the other, the smart money suggests that they are going to accomplish what Amazon wants. This should force its merchants to think carefully about what they send to Amazon and to favor products that are going to move quickly. It should also get merchants to alter their shipping policies. One seller in the article says that it is making smaller more frequent shipments. Assuming that it has its own storage space, this could be a gain for the entire supply chain as goods are shifted from an expensive storage location (i.e., at Amazon) to a cheaper one.