Radically New Amazon Storage Rules and What They Mean for Me
Amazon has released their new storage fee calculations for this year. The changes are broken down into three groups, short term storage fees, long terms fees and inventory management. The new systems start in April.
Rather than just increasing fees across the board for Long Term Storage Fees (LTSF), Amazon has radically changed the way LTSFs are calculated.
Rather than assessing LTSFs twice a year, they are now assessed monthly. Every unit that has been there for 6 months or longer will now incur a severely increased monthly storage fee. This fee is less than the biannual fee, but when you consider that it will have been charged 5 extra times after 6 months, it comes out to significantly more than the previous system.
In addition, any unit that has been there for more than 365 days will incur a minimum of $0.50 per unit monthly charge.
This is an all out assault on long term storage at Amazon Fulfillment Centers.
Unit now, everyone was given specific storage limits for standard and oversized units. Now your storage will be determined by your inventory performance index (must be logged in to access the link). If you have more than a 350 you will have unlimited storage. If you have lower than 350 you will be warned and if it continues you will receive inventory limits and cannot create a new shipment until your inventory gets below your limit. If that hasn't happened by the end of the month you will be charged $10 per cubic foot above your storage limits. Evaluations are done every 3 months. You can read more about it here.
You can see that the index is made up of your excess inventory, keeping popular products in stock and how much of your inventory is stranded.
You (at least I will) will need to have a much more active inventory management system in place. You can't just check twice a year before LTSF to make sure you sell everything. You will have to check every month. It makes large catalogs much tougher to work with. Consider an autopricer to help you.
Storing outside of Amazon is more important than ever. If you buy 300 of something and you only plan on selling 30 a month, don't send all 300 in. In addition, if you fulfill orders on your own (FBM, Seller Fulfilled Prime or other marketplaces), you will avoid these fees entirely.
Once you have your own facility and are doing more fulfillment on your own, other marketplaces will start to become more attractive, especially if sellers start to have to raise prices on Amazon to keep their margins within reason. Customers may start looking elsewhere for better prices.
Amazon has the right to raise their fees. Sellers can't stay static, they need to react appropriately to remain profitable. You don't want to turn around months later trying to figure out why you aren't making money any more or why you are making less money.
As always, good luck selling!
Short Term Storage Fees
Short term storage fees (storage fees assessed on your inventory at fulfillment centers the previous month) have been increased across the board. There is a $0.05 per cubic foot increase. If you were selling a standard sized item which was exactly 1 cubic foot, rather than paying $0.64 per unit, you now pay $0.69 per unit. If the item is 1/2 of a cubic foot you are going from $0.32 per unit to $0.345 per unit per month. It's a 7.8% increase in storage fees for standard sized for 9 months of the year. The same $0.05 is added for oversized units though the percentage increase is lower.
The October through December extra storage fees continues, again with a $.05 increase in storage fees per cubic foot.
Long Term Storage Fees
Rather than assessing LTSFs twice a year, they are now assessed monthly. Every unit that has been there for 6 months or longer will now incur a severely increased monthly storage fee. This fee is less than the biannual fee, but when you consider that it will have been charged 5 extra times after 6 months, it comes out to significantly more than the previous system.
In addition, any unit that has been there for more than 365 days will incur a minimum of $0.50 per unit monthly charge.
This is an all out assault on long term storage at Amazon Fulfillment Centers.
Storage Limits and Fees
You can see that the index is made up of your excess inventory, keeping popular products in stock and how much of your inventory is stranded.
Ramifications
Smaller is better
As usual this affects larger items much more than smaller items. Focusing on smaller items should be much more profitable via FBA.
Faster is Better
Items that are slow moving are going to hurt a lot more. Cycling through more volume is better for storage than slow (even if profitable items). Slower moving items will have a far greater chance for LTSFs since it only takes 7 months to get there now.
Sending in Pallets is less beneficial
Shipping with pallets is much cheaper than individual boxes, especially as you said multiple pallets. That being said, sending multiple pallets of a single items is going to be more difficult while still avoid LTSFs. Mixed pallets should be unaffected.
Gaming LTSFs is Gone
It used to be that if you sent in an item after mid February or after mid August you could get almost a full year of storage without paying LTSF since your item wasn't at a FC for 6 months when LTSFs came around. That is gone.
Active Inventory Management
Prices Will Decrease
There will be a ton of people lowering prices right now. Previously you could hold onto a video game indefinitely a pay less than $0.20 a unit of storage per year since they were so small. Now, you will pay a minimum of $0.50 a unit per month every month that it has been there for more than a year. People will look to dump their bad positions. The fees start soon so sellers will need to lower now to make sure to avoid these fees.
Long term I think prices will increase as sellers will go out of stock more frequently but short term prices will go down in my opinion.
Store Less at Amazon, Fulfill Less via Amazon
Storing outside of Amazon is more important than ever. If you buy 300 of something and you only plan on selling 30 a month, don't send all 300 in. In addition, if you fulfill orders on your own (FBM, Seller Fulfilled Prime or other marketplaces), you will avoid these fees entirely.
Once you have your own facility and are doing more fulfillment on your own, other marketplaces will start to become more attractive, especially if sellers start to have to raise prices on Amazon to keep their margins within reason. Customers may start looking elsewhere for better prices.
Conclusion
Amazon has the right to raise their fees. Sellers can't stay static, they need to react appropriately to remain profitable. You don't want to turn around months later trying to figure out why you aren't making money any more or why you are making less money.
As always, good luck selling!
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