Thinking about joining Amazon's FBA? You may have missed your window. Penny sellers on FBA ruining any chance for success

If you're a book seller who has been thinking about joining Fulfillment by Amazon, you have probably missed your window.

FBA was never great - they launched about two years ago with LOTS of bugs, and have been slowly improving their service (and correcting their many glitches).

But now, these idiot "penny" mega-sellers have got on board, just about ruined any chance that a regular book seller has to make money. They are, in fact, ruining Amazon for all sellers. (click to enlarge this example we found today)

See this recent example of a John Grisham book. Just one month ago, the book had a good sales rank, and used prices starting at $1.00 + shipping (new prices starting at about $3.00 + shipping). Not great ... but now, the penny sellers are using their FBA status to ruin it for everyone.

And ...get this... they are selling most of their books at a LOSS. That's right, they are literally paying Amazon and the customers to take their books.

This example is an average of what we've seen over the last few weeks (November 2009). It is by no means the worst. In this case, the mega-sellers are selling the book at a loss of about 60 cents per book. In some cases, they lose several dollars per book.

Keep in mind, there is no opportunity to make money on shipping/handling, since FBA sellers do not get reimbursed for s/h. Also keep in mind, losing 60 cents per sale is their best case scenario - there are many other fees & contingencies which may cause them to lose even more money.

For example:
  • If there is a weight error, they may lose a couple dollars per book
  • If the book is returned, they face a 5% restocking fee
  • If the customer complains, they lose an additional $2.50 on this order (which is not reimbursed - remember, FBA sellers receive no A-Z protection)
  • If the item is in storage for more than a month before it sells, it accrues fees while it sits there
  • Click here for our list of "12 Passive FBA Fees, Not Disclosed Up Front"

The first question is: Why do they do this if they're losing money? There are lots of ideas on the Amazon discussion board as to why penny sellers do this. Some say they try to build their brand and earn customers - which simply doesn't work. Amazon customers shop on Amazon.com - the strategy of converting their customers to be loyal to your site is ridiculous.

Some say they t make money on handling - and maybe these sellers are too stupid to realize you don't get shipping or handling credits for FBA items!!

My theory is that they have a staff who don't pay attention, and are paid by quantity not quality. I've been to book warehouses like this - there is little oversight, they cut corners and don't hire an accountant. So nobody actually looks at their statements line-by-line to see how they are losing money, and how much money they are losing.

Notice two other things: first, the prices aren't just low - they seem to drop the prices by 10 and 20 cents at a time. Stupid pricing model, especially for a low dollar item to start with.

Second, their feedbacks are awful. Some have 5% or more negative feedback, which could get you suspended. I'll write more about that later.

So, if FBA is no longer viable for book sellers, does it work for anyone?

FBA seems to work best for importers of things like clothing lines, toys from China, etc. In the surveys we've seen, most of the FBA users are manufacturers and businesses who import 10-12 product lines per year (say, stuffed animals, baby toys, cell phone accessories, etc), send the entire truckload to FBA, sell maybe 50% of their inventory during the Christmas season, then pay FBA to throw away/dispose of the remaining inventory.

(FYI - the warehouse charges an additional 60 cents per item to throw away your things, even more for non-media items).


Anonymous said...

i saw a FBA seller with 70% feedback.

that is, i mean 30% negative or neutral feedback.

how is that possible? as a normal seller, i get a warning email if i get more than 2 or 3 negs in one month!

the same person was selling an fba book for $1.95. by your math, wont they be loosing over a dollar on that transaction?

Sustainable toys said...

Great article. I've noticed toy retailers doing the same thing. They'll clear out inventory and make 2% at best on some of the items. It seems, they figure there is money to be made in volume, but over the long, I don't see how it can pencil out.

Anonymous said...

Tell me about it. I worked at B&N for years and their clearance sales were ridiculous: a bought a project management book for $1 and sold it for $50.

All my current inventory is overpriced by FBA standards but way less than what I originally paid.

Thanks for letting me know about the fees. I hadn't seen that before.

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Anonymous said...

You are hugely overstating the storage fee. 15 cents? No way. The rest of your argument seems relatively sound (although 3 cents for a label also sounds pretty high).

Anonymous said...

Actually I think 30 cents shipping per book is high also. 1 cent for a label, maybe 7-10 cents to ship.

Anonymous said...

Be very careful of sending items to FBA. What Amazon will not tell you is your returns will go through the roof. Our return rate was below 1%.
Amazon sales called us to convert to FBA and we started sending inventory to Amazon FBA. After 3 weeks I was shocked. The returns were averaging about 8% and we had to pay for those items to be shipped back to us. We immediately stopped sending items to FBA and our return rate has dropped back to below 1%. also it's not that easy as Amazon makes out FBA to be. You still have to label all the items and ship to Amazon.

Anonymous said...

Huh???...15¢ storage fee is an ~overestimate~?

Only if ALL your items sell within one month. The average hardcover is 3-5¢ per month (more during the 4th quarter).

FBA was finding the ~average~ storage was 24 months (i.e., over $1.00 in storage!), so they initiated the long-term storage fees.

Now, after 12 months, you get assessed ANOTHER $1.00-$3.00 per item in long-term storage fees.

Yeah, I'd say 15¢ is a pretty conservative estimate.

Anonymous said...

If you have Amazon sticker items for you, add another 30¢ per item.

mark said...

Very good article , fee amounts are rather confusing. mark

Anonymous said...

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John said...

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