A
brewing conflict between Amazon.com and its merchants over fee hikes
could benefit rival eBay, and provide an opening for Wal-Mart Stores and
Google, which are just getting into the space.
Amazon's
online bazaar generates margins many times higher than traditional
retail as the company takes a cut of every sale on its site made by a
merchant, known as a third-party seller, and charges extra fees for
handling logistics.
The growth of this
business, which now accounts for almost 40 percent of unit sales, has
helped push Amazon shares to record highs.
But a series of fee hikes over the past year and a half have alienated many merchants, and some are threatening to defect.
"If
they increase fees too much, some sellers will decide to not sell there
anymore," said Niraj Shah, chief executive of furniture retailer
Wayfair, which uses Amazon, eBay and Wal-Mart's online marketplaces, as
well as its own websites.
"That's against
Amazon's plan, which is to get as much selection as possible on their
site," Shah added. "The vast majority of Amazon sellers are perfectly
happy to go to any marketplace offering meaningful volume."
Amazon
said many of the fee increases have been driven by rising costs, such
as higher gas prices and hence transport expenses. It said it has also
invested in changes to get products to customers quicker - a push that
third-party sellers will benefit from because faster shipping should
increase sales.
But sellers see it
differently, complaining on online seller forums that Amazon's fatter
returns came partly from putting a heavier burden on their shoulders.
"Shipping & fees are killing my margins," wrote one seller last
month.
Another, in August, complained about
higher fees for selling electronic accessories that were due to kick in
early this year: "Holy crap! 8% to 15%?! Goodbye good deals from 3rd
party sellers on Amazon in the electronics section."
A
third ranted in August about higher costs for shipping products to
multiple Amazon warehouses. "Amazon just pulled a fast one," the seller
wrote. "Now that Amazon has all the power, they're imposing increased
fee hikes to all those cozy sellers who have supported Amazon since Day
1."
The complaints became so raucous last year
that the company took the forums down and re-launched them. The new
forums let sellers give each other ratings for their posts - a move that
some sellers viewed as a way to reduce extreme complaints.
"The
updated forums were created to be more responsive to the needs of the
seller community and give them information they need to help build their
businesses," Amazon spokesman Erik Fairleigh said.
Multiple customers
eBay
used to be the top online destination for sellers, but Amazon's
marketplace ended its reign after its launch over a decade ago, helped
in large part by "Fulfillment By Amazon," or FBA, a service that stores
and ships items and even handles customer service on behalf of sellers.
Fees
are a touchy topic for sellers with skimpy margins, as eBay knows from
merchant revolts it has struggled to quell in the past. Fee hikes by
Amazon are particularly irksome to sellers because they compete with the
company, a seller in its own right, in many categories on the site.
eBay does not hawk its own wares.
When Amazon
introduced a new long-term storage fee for items that sit in its
warehouses more than a year, some sellers elected to have the company
destroy their unsold inventory as it was cheaper than getting the items
shipped back to them.
Kat Simpson, a
third-party merchant who also trains others how to sell on Amazon, said
the company charges her 50 cents per item to return unsold inventory
from its warehouses but just 15 cents per item to destroy it, she said.
"I
would have said everybody needed to try FBA last year. Now I would say
no," she said. "If you are selling items under $25, you won't do as well
on Amazon as on eBay profit wise."
It costs
$3.92 to sell a $10 item on Amazon and $2.72 on eBay, according to Bill
Vogel of The Cumberland Companies, which sells on both. But eBay takes
more time and most merchants store inventory themselves, adding other
costs, he noted.
For now, many merchants remain tied to Amazon's marketplace, which has two million third-party sellers.
"Customers
like lower prices, but customers also like greater convenience, faster
shipping and great selection," said Tom Taylor, vice president of
Amazon's FBA business.
Some seller fees, particularly for some larger products, have been cut, he noted.
Competitors
Wal-Mart's
marketplace now features just six merchants: Wayfair, Plumstruck,
eBags, ProTeam, ToolKing and Shoebuy. Spokesman Dan Toporek said the
world's largest retailer is trying to expand available products and it
"is a key component of that strategy to accelerate the growth."
Google
may be the bigger threat. It already owns most of the necessary pieces,
such as product search, listings and a payment service -- it just
hasn't combined them yet.
It began testing a
same-day delivery service with retailers in recent weeks, sparking
speculation it's building a marketplace. A spokeswoman said Google is
always working to improve the user experience, including shopping.
"If
somebody comes in, a Google for instance, and says you can list with us
and we will give you wide exposure at much lower cost, that would be a
problem for Amazon," said Scott Tilghman, an analyst at B Riley Caris.
Consumers
want selection, bargains and fast shipping, which all cost money.
Getting sellers to cover those expenses could drive them elsewhere. Yet
if marketplace operators cover such costs, their profits suffer and
shareholders grumble.
"There's always a trade-off," said Ken
Sena, an analyst at Evercore Partners. "There's always that risk that
sellers could defect."
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