Amazon is the biggest ecommerce site in the world. To service this giant market, which includes direct sales as well as sales by independent merchants in the Amazon marketplace, Amazon is also one of the largest operators of fulfillment centers in the world. No one knows exactly how many millions of square feet of fulfillment center space Amazon operates (the company keeps information about its warehouses very close to its chest), but we do know that it’s not enough. To free up warehouse space during the holiday rush, Amazon has made changes in how it handles stock from marketplace sellers and that has some FBA customers up in arms.
Fulfillment by Amazon
In 2006, Amazon opened its order fulfillment centers to vendors who sell on the Amazon marketplace. The service, called Fulfillment By Amazon, comes with perks: products fulfilled through FBA are eligible for Amazon’s free shipping offers and FBA handles returns and customer service.
For small vendors who aren’t set up for shipping or who don’t want to spend the time and energy it would take to ship their own products, FBA seemed like a good deal. All they had to do was ship their goods to Amazon and FBA would operate as their fulfillment center. The deal is so appealing that about a quarter of Amazon sellers have turned to FBA for their fulfillment needs.
Amazon Fulfillment Center Space Limitations
Last November and December, as vendors using FBA piled their holiday stock into Amazon’s fulfillment centers, the unthinkable happened: Amazon ran out of warehouse space. FBA became a victim of its own success.
This space crunch led Amazon to change its policies for this holiday season, raising prices in an attempt to reduce the amount of product that FBA sellers keep in inventory during the busy Christmas buying season.
Kevin King, operator of Illuminati Mastermind, is a longtime seller and an FBA expert. He notes that Amazon now raises storage fees to incentivize sellers to keep only minimal inventory in FBA fulfillment centers. “When I first started, I’d assemble pallets in my garage and ship them to Amazon,” King says. “Now, I’m using multiple storage units for extra pallet storage and shipping more frequent, smaller cases to Amazon warehouses.”
Although Amazon announced these new policies for the 2016 holidays, the FBA space crunch is nothing new. An Amazon Seller Forum thread shows that sellers were coming up against storage limits at least as far back as the fall of 2014.
The problem is especially acute for sellers with oversized products, which are subject to a special set of storage constraints. ”Amazon’s desire for you to turn inventory quickly is valid, but their metrics are far too aggressive,” one poster notes. “If I want to invest my capital to carry excess inventory, and I’m prepared to pay for the storage, Amazon should let me load my inventory to my heart’s content.”
Long lead times for shipping and loading stock into fulfillment centers compound the problem created by limited storage. As another seller notes, “If there were no delay between our shipping and stuff getting checked in, it would be more manageable, but we have a persistent problem with stock-outs of our items while units are moved from one end of the country to another on trucks that are apparently powered by snails, followed by them sitting awaiting check-in for days once they finally do arrive. Right now, while we’re not yet in the complete frenzy that is around the corner, it’s 11-14 days between when I ship and when stuff is fully checked in. When I can’t even have 3 of each item in stock, the delay is going to be devastating.”
Some sellers are using this experience to diversify their marketplace offerings in an attempt to mitigate the risk of future Amazon policy changes. Will Schneider, with WarehousingAndFulfillment.com explained that, “we have received a lot more inquires from people that are looking to “diversify” their risk by expanding into other marketplace and online sales channels, especially since the net margins with selling on Amazon and using FBA are so low and being driven even lower every year.”
Christmas Fulfillment Center Crunch
The headaches that FBA space limitations cause sellers are like a chain of dominos that fall one after the other. We all wish that sales were steady and predictable. If you knew you were going to sell one Christmas tree lamp every week throughout the year and 20 per week in November and December, you could simply plot out a shipping schedule that would keep your Christmas tree lamps fully stocked at the fulfillment center 100% of the time.Of course, ecommerce sales aren’t that predictable. Your Christmas tree lamps could sit lonely on the shelf at the fulfillment warehouse for months and then get ten orders in one week. With the restrictions on storage and long lead times for restocking, Amazon FBA can turn from a godsend to a nightmare overnight.
Out of stock items don’t just mean lost sales. You can lose customers, as ecommerce shoppers turn to other sellers to find what you can’t offer.
The fact that FBA inventory policies are stricter during the holiday season, which is when some ecommerce retailers make the bulk of their sales, adds a huge element of stress to a time that’s already stressful for sellers. You don’t want to spend your holiday season wondering whether you’ll be able to get enough products out to your customers through the FBA bottleneck.
Fulfillment Center Solutions
To compete in an ever-growing ecommerce marketplace where customers expect fast service, you need to make sure your products are available to ship from the fulfillment center at all times. There’s nothing worse than a Christmas tree lamp sitting on a pallet in a truck when Shirley in Poughkeepsie just has to have one for her niece.
After reading about all the hassles with FBA, you may decide you are better off setting up a little fulfillment center in your garage and sending those Christmas tree lamps out yourself. Packing and shipping your own orders is not the only alternative to FBA. Many third party fulfillment services, including Red Stag, integrate seamlessly with the Amazon platform. In addition to serving as your ecommerce fulfillment center to pick, pack, and ship your orders during the Christmas rush and all year long, Red Stag offers inventory storage (without arbitrary limits) and ecommerce returns. Plus, when you outsource your fulfillment to Red Stag, you can expand your ecommerce empire beyond Amazon. We offer full integration with eBay, Magento, Buy.com, Shopify, WooCommerce, and many other ecommerce sites.