Fulfillment by Amazon or Amazon FBA lets sellers in the Amazon marketplace take advantage of Amazon’s giant logistics operation to ship their orders.
FBA items are eligible for Amazon Prime shipping and Amazon handles your angry customers (which Amazon considers its customers, not yours). Amazon has dozens of warehouses all over the country, and more around the world, so your products may be in your customers’ hands quickly.
If you pull back the Amazon curtain, however, you find the picture isn’t always rosy.
Q4 of 2016, in particular, created less than ideal press for the company when a British jury found Amazon UK guilty of shipping hazardous materials by air without proper labeling or packaging. While FBA sellers weren’t held directly liable for this failure, thousands of FBA sellers were severely impacted when Amazon enforced last minute changes to their inventory storage policy just before the holidays.
If you sell on Amazon and want to outsource your fulfillment, here are 7 pitfalls to consider before you choose FBA over an independent 3PL provider.
Amazon FBA Inventory Woes
The inventory that’s on the shelves and logged into the system is the inventory your 3PL warehouse can pick, pack and ship to your customers. Amazon FBA sometimes falls short in this crucial metric. Mishandled inventory is one of the problems most commonly reported by Amazon FBA sellers.
Some sellers have complained of a lag time that can stretch from days to weeks for their inventory to be logged into the Amazon FBA system and ready to ship. This can cause delays in your customers’ shipments that lead to a drop in your seller ratings or even canceled orders. Even if the delay doesn’t impact your customers, inventory that sits on a pallet on a loading dock ties up your capital without bringing in money, something you want to minimize in your ecommerce business.
Your product can also get lost in the Amazon supply chain. When this happens, you must file a claim and Amazon will usually reimburse you for the loss. In the meantime, once again, you aren’t generating sales. To add insult to injury, the amount of your reimbursement may be based on Amazon’s valuation of your merchandise, not what you actually paid for it.
Sellers also report extra inventory showing up after they ship to Amazon FBA. It can take time and frustrating back and forth with customer service before your correct inventory numbers show up in the system.
Amazon runs an enormous fulfillment and logistics business. To do that, it has efficient systems in place. When there’s a glitch in those systems, however, it’s often the little guy who gets squeezed.
Amazon FBA vs. Your Brand
If you’re like most entrepreneurs, you want control over every aspect of your business so you can make sure it runs properly. With Amazon FBA, you have no choice but to give up some of that control.
The most obvious place where Amazon places its stamp on your business is on the box. All Amazon FBA orders are shipped in boxes with the Amazon logo. You don’t have the option to include a personal note from you to your customer or to ship in a box with your brand or even a neutral box.
While Amazon FBA does offer multi-channel fulfillment, orders from your website and other platforms will still be sent in Amazon boxes. This can create confusion and could detract from the relationships you want to build with your repeat customers.
If establishing a strong brand is important to you, you’ll have to look beyond Amazon FBA.
Missing that Personal Touch
Your 3PL warehouse can do a lot more than store inventory, pick and pack, and ship orders. At Red Stag, for example, we can add inserts and personalized marketing materials to your customers orders, or help you source uniquely branded boxes and even tissue paper with your company’s logo. We can also kit your inventory to increase your sales (and disassemble kits, if you need the product) to ensure you’re shipping an optimized number of parcels per order.
You won’t find services like these, which require personal attention and expanded capabilities, at Fulfillment by Amazon.
Customer Service Woes for Amazon FBA Sellers
The test of any vendor is not when things go smoothly but how well they handle the glitches that inevitably occur. According to Amazon seller forums, numerous Reddit forums, and countless other sites, Amazon FBA does not do well on this test, nor do they appear to be getting better.
Sellers report spending hours on the phone and exchanging multiple emails with customer service. Problems can sometimes take weeks to resolve.
On the flip side, Amazon FBA will handle customer service when your customers have an issue. No one likes talking to an irate customer, so outsourcing your customer service may be a blessing. The question you should ask yourself is whether you trust Amazon to do a good job giving your customers the personal attention and respect that you want to reflect on your business.
The products of sellers who use Amazon FBA are automatically eligible for free Amazon Prime shipping. While this can be a plus in attracting more Prime customers, you still have to pay for the shipping costs and fees.
You won’t be able to decide which products get free shipping. Whatever your margin on an item, you’ll have to absorb the shipping costs for Amazon Prime orders.
Before you sign up for Amazon FBA, you’ll need to calculate not only the fees for the service but also the extra bite that free shipping can take out of your bottom line.
Sales Tax Nexus
Sales tax nexus means a physical presence in a state such that you must pay sales taxes in that state. For example, Bob runs a business selling kitchen appliances. Bob is based in Pensacola, so he has sales tax nexus in Florida. When he ships an order to a customer in Florida, he must add sales tax and remit that tax to the state.
As more business moves from brick and mortar retail to ecommerce, states have been scrambling for ways to make up for lost sales tax revenue. In the process, they have expanded the definition of nexus.
One of the ways Bob’s business may get sales tax nexus outside of Florida is by having his products stored in a warehouse in another state. If Bob chooses Red Stag as his fulfillment warehouse, his inventory in our Knoxville fulfillment warehouse may trigger an obligation for him to register to collect and remit Tennessee sales tax. Since Red Stag has warehouses in just two states and our clients have full transparency about where their inventory is stored, the additional sales tax paperwork is manageable for Bob.
If Bob signs up for Amazon FBA instead, however, he could open a sales tax nexus can of worms. Amazon has fulfillment warehouses in at least half the states in the US. It’s hard to keep tabs on exactly where these fulfillment centers are located because Amazon doesn’t like to reveal this information.
Amazon FBA won’t tell Bob where his inventory is stored and may move his blenders and toasters from one warehouse to another. He can only find out where his products were stored by looking at the locations from which Amazon FBA shipped his orders. This can create sales tax collection headaches for Bob.
Amazon FBA Inventory Swap
This is perhaps the most troubling problem sellers have encountered with Amazon. To explain it, let’s go back to Bob in Florida. One of Bob’s most popular items is a Rise ‘N Shine brand coffee maker. Amazon FBA has Bob’s coffeemakers in warehouses around the country, but not on the West Coast.
Then Zelda in Eugene, Oregon orders a Rise ‘N Shine coffeemaker from Bob. Amazon has some Rise ‘N Shine coffeemakers with the same SKU in a warehouse in Northern California. The inventory belongs to another Amazon FBA seller. In the name of efficiency, Amazon ships a Rise ‘N Shine coffeemaker from its California fulfillment center to Zelda in Eugene, but Bob in Florida gets credit for the sale.
There are some benefits to this inventory flexibility. It saves on shipping time and costs, which is good for Bob and his customer. But what if the item in the California warehouse is actually a knockoff being sold under the same SKU? When Zelda opens the box and finds she’s gotten a lower quality product, the Rise ‘N Whine Coffeemaker, she will not be happy.
The bad rating from this incident will go to Bob, whose seller reputation may be damaged, even though he didn’t market substandard goods under false pretenses. Mistakes like this have happened to more than one seller.
In an ecosystem the size of Amazon FBA, where personal attention is hard to come by, the flip side of the company’s huge logistics machine is mistakes that can ruin a reputation.
Is this a risk you are willing to take?