Unpacking the Pros and Cons of Fulfillment by Amazon

For your apparel or consumer product company to grow and succeed in a competitive global marketplace, a strong Amazon presence and a clear understanding of key services — especially Fulfillment by Amazon (FBA)— could be vital. This Fashion Sense issue unpacks the pros and cons of the FBA program to determine if this unique service is ideal for your business.

Consumer Intelligence Research Partners (CIRP) revealed study results in October 2017 showing that 90 million US consumers are now Amazon Prime members are spending nearly $1,300 a year, while non-Prime shoppers spend $700 in a year.¹ Through FBA, businesses of all sizes can access millions of Amazon Prime members by distributing products through Amazon fulfillment centers. Additionally, the service provides customer service to manage returns, refunds and general order inquiries. However, there are caveats to keep in mind before rushing into the program. 

Pros of FBA

• Prime-Eligible. Your merchandise becomes Prime-Eligible — amplifying your exposure and opening your business to the 90 million Prime customers who receive optional free two-day shipping. Many customers are willing to pay more for products knowing they will receive them in two days.
• Multi-Channel Fulfillment. You can sell products through any channel in addition to Amazon’s marketplace. An easy-to-use portal helps you monitor your inventory to determine restock needs, demand for your products and how well your company is meeting the demand. The portal also allows you to direct Amazon to return your inventory to fulfillment centers at any time.
• FBA Logistics and Customer Service. Sellers can ship products to Amazon Fulfillment Centers throughout the country and let Amazon handle the rest. Meaning Amazon retrieves, packs and ships to your customers — fulfilling your inventory. In addition, Amazon will handle customer support for returns, refunds and general order inquiries.
• Save Time. With Amazon handling logistics and customer service, it will free you up to focus on other areas of your business.

Cons of FBA

• Fees. The FBA program is a costly fee-based service, which can eat into your margins. Prices change depending on the product and it can be easy to rack up fees. For example, order handling pick and pack, weight handling storage fees and more are all fees to keep in mind. Annually, fees are adjusted to reflect the changing costs of fulfillment, transportation and customer service.
• Aged Inventory. The FBA program will continue to charge warehousing expense for aged inventory that is not selling. Tracking this inventory may become a challenge. You must analyze how much inventory to ship FBA beforehand. If you over-ship, you will be paying fees for Amazon to ship them back, destroy them or continue to warehouse them.
• Relinquish Control. You do not have the opportunity to cost out materials, shipping routes or visit the warehouse to see what you have on hand as Amazon controls your inventory.
• Shipping to the FBA Fulfillment Centers. Amazon requires specific shipping and labeling instructions to their fulfillment centers according to Amazon’s ASIN/UPC system.

Depending on the nature of your business model and products, the FBA program can be an extreme advantage or possible hindrance to your success. For further guidance and other strategic advice to benefit your business, contact Michael Sacco at msacco@friedmanllp.com or your Friedman LLP advisor. 

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^{1 http://fortune.com/2017/10/18/amazon-prime-customer-spending/}