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May 07, 2024

Navigating Amazon's Controversial Low-Inventory-Level Fees

Explore Amazon's controversial low-inventory-level fee delay, seller perspectives, regulatory scrutiny, and emerging e-commerce dynamics.

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Amazon’s controversial new low-inventory-level fee, a charge imposed on merchants who fail to maintain sufficient stock levels relative to their sales volume when utilizing Amazon’s Fulfillment by Amazon (FBA) service, has been delayed for a second time this year. Originally slated to take effect on April 1, 2024, the fee has now been delayed until May 14, 2024. 

Here’s everything you need to know about Amazon’s new low-inventory-level fees.

 

A contentious beginning

The origins of this polarizing policy can be traced back to the last month of 2023 when Amazon first announced its intentions to launch the low-inventory-level fee. As articulated by the e-commerce titan, the rationale behind this move was to incentivize sellers to maintain specific inventory levels based on historical sales data to ensure prompt product delivery to customers across Amazon’s fulfillment network. 



A phased implementation marred by backlash

As the low-inventory-level fee took effect on April 1, 2024, Amazon initially granted sellers a temporary reprieve by crediting back any fees incurred during the month. This transition period, aimed to provide merchants with a real-time understanding of the fee’s potential impact on their operations, allowing them to make necessary adjustments. However, the “transition period” might not have been what Amazon expected. 

The implementation of the fee during the trial period was met with widespread alarm from the Amazon seller community. Concerns ranged from uncertainty about the fee’s precise implications to accusations of unfair treatment, as sellers were simultaneously penalized for maintaining excessive inventory through existing storage fees. 

And here we are in May, where Amazon has once again delayed the new low-inventory-level fee and announced via the Amazon Seller Forum that it will extend the grace period through May 14, 2024. 

 

Amazon’s strategic maneuvers

In response to the mounting criticism, Amazon unveiled a series of amendments to the low-inventory-level fee structure on May 1, 2024. These modifications have been made to help address some of Amazon sellers’ most pressing grievances while simultaneously safeguarding Amazon’s overarching objectives. 

Excepting low-volume products

One of the most significant concessions involved exempting products that sold fewer than 20 units in the last week from the low-inventory-level fee. This change was Amazon’s way of acknowledging the unpredictability of managing inventory levels for seasonal, end-of-life, and other low-volume products with fluctuating demand patterns. 

Crediting delays caused by Amazon

Amazon has also pledged to credit sellers for any low-inventory fees incurred due to excessive inbounding and processing delays caused by Amazon or its managed services. These credits would be issued by the 15th day of the following month, providing sellers with a measure of relief in instances where factors beyond their control hampered inventory replenishment. 

Prime Day exceptions

Amazon also recognizes the pivotal role that Prime Day plays in driving sales for its sellers. Amazon announced a time-bound exception for low-inventory-level fees for products included in Prime-exclusive Lightning Deals and Best Deals. **This exception would apply for four weeks following Prime Day, acknowledging the potential for inventory fluctuations based on the event’s sales performance.    



The seller’s perspective

Despite Amazon’s efforts to address seller concerns, the low-inventory-level fee continues to polarize opinions within the merchant community. Some recognize the potential benefits of maintaining optimal inventory levels, while others theorize that these new fee structures have been designed to push out smaller sellers. 



Navigating the inventory maze

To aid sellers in navigating this intricate fee landscape, Amazon has provided a suite of tools and resources. For instance, the FBA inventory tool enables merchants to track their inventory health and identify products at risk of incurring low-inventory-level fees. Additionally, the FBA Revenue Calculator and SKU Economics report offer insights into fee estimates and historical charges. 

However, for many sellers, the true challenge lies in finding the elusive “sweet spot” when it comes to inventory. To help with this, sellers also implement an inventory management system, like Zenventory, to help make sure that their inventory stays at the optimal level. 



Regulatory scrutiny and antitrust concerns

The introduction of the low-inventory-level fee, coupled with Amazon’s requirement for sellers to ship inventory to at least four different warehouses, has drawn the attention of regulatory bodies. The Federal Trade Commission (FTC) has reportedly initiated an investigation into these fee changes, citing concerns over potential anti-competitive practices and the potential for overcharging sellers. 

The scrutiny aligns with the FTC’s broader antitrust suit against Amazon, filed in September 2023, which alleged various unfair business practices by the e-commerce giant. As the regulatory spotlight intensifies, Amazon may face increased pressure to re-evaluate its fee structures and policies to ensure compliance with antitrust regulations and fair competition guidelines. 

 

Emerging rivals and shifting dynamics

While Amazon grapples with the fallout from its low-inventory-level fee, the e-commerce landscape is witnessing the emergence of formidable rivals and changes. In addition to platforms like Temu and TikTok Shop encroaching on Amazon’s turf, there is also the fact that nearly half (47%) of Gen Z shoppers say they are actively trying to shop less at Amazon

Therefore, this competitive pressure, change in buying habits, and ongoing seller discontent could prompt a re-evaluation of Amazon’s pros and cons. There are other options for alternative avenues to reach customers to better fulfillment networks so sellers can get FBA speeds without the FBA fees and headaches

 

Only time will tell how these new fees will play out. 

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