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May 20, 2011

Amazon Fulfillment Center (FC) News

It's interesting to watch what Amazon is doing with FCs as it's one of the only ways to read the tea leaves on their 1P business and thanks to FBA it gives us some visibility into their 3P business as well.

Fresh off my trip to the EU where Amazon announced they are opening up Italy to 3P/FBA (which was very exciting to UK/DE/FR based sellers), it's clear that Amazon has their sites set on a World-wide network of 3P+FBA centers that allow for truly global commerce.

Background

Amazon has 26m sq-ft of FC space across 52 centers and has plans to grow that 48%.  This week we had two pieces of FC news - first our friends at Goldman Sachs issued a report updating where Amazon is on their 2011 build-out plan.  Second, Amazon announced a new fee for FBA users.

2011 FC Update from Goldman Sachs

James Mitchell and his team at GS have a great report out today with these highlights:
  • They have tracked 13 new FC announcements so far in 2011, up from 9 in April (that's 4 in basically a month!)
  • The most recently announced are: Washington state, Indiana, Jiangsu, China
  • Amazon stopped building in TX and SC due to tax issues (SC may be back on - not clear)
  • After adding four small centers in China, they have now announced two much larger near Shanghai.  This signals that Amazon is seeing strong growth in China and comfortable investing in the region at a faster pace.

Goldman had this handy chart that tracks FC news so far in 2011->

Amazon_fcs

Annual fee for FBA

Also this week, Amazon alerted FBA users that it will now impose a $45/ft^3 annual fee for merchandise that doesn't turn over in a year's time, or the seller can choose to have it 'disposed'.  There have been a lot of questions about this, so I've included the exact letter sent to FBA users later in this post and you can read a FAQ here.

This only impacts a very small percentage of sellers that had some longer tail type slow moving stuff in FBA.  Some customers I've talked to had questions that aren't answered in the FAQ about:

  • What is the disposal method?  Will they sell it on Amazon at all?

Also, some folks that also sell on eBay have come up with the logical strategy that if inventory has been in FBA for ~10 months, then flush it out on eBay at $1NR auction to liquidate it.  (That sounds like a cool software feature, hmmm).

In any case, when you look at the big picture, FBA is more of a program for increasing sales than storing products so this feels like a good long-term move for everyone to keep the fast moving stuff in FBA and move the very slow stuff out to other solutions.

I'd love to hear any other reactions, questions, concerns about FBA and Amazon FC's in comments - as always we'll do our best to get answers and make sure the team @Amazon hears your concerns.

Details of Amazon's note to FBA users follow

Dear FBA seller,

 
In order to meet Fulfillment by Amazon’s (FBA) ongoing commitment to providing a world-class shipping and customer-service program for your products, we will soon introduce new inventory management features and a Long-Term Storage program to better support all sellers’ storage needs.


The Long-Term Storage program will take effect on August 15, 2011. On that date, and each six months thereafter, FBA will conduct an Inventory Cleanup, at which time inventory that has been in our fulfillment centers for 365 days or more will be assessed an upfront, annual Long-Term Storage fee of $45.00 per cubic foot. This translates to $1.10 for an average-sized (8" X 6" X 1") book or $4.58 for an average-sized (11" X 8" X 2") toy. To provide additional flexibility to maintain your unique selection, one Unit of each applicable product ASIN will be exempted from annual Long-Term Storage Fee. Please note, FBA accounts for inventory on a first-in-first-out (FIFO) basis.


Prior to August 15, you will have the option to remove these Units for a reduced fee. Effective immediately, we will be lowering our regular fees for removing inventory from Amazon’s fulfillment centers. The per-unit FBA Inventory Removal fee will decrease from $0.60 per-Unit plus shipping to $0.50 per-Unit with no shipping fee, or $0.15 per-Unit to dispose of the inventory. (The per Unit price of a removal for Oversize Units is reduced from $3.00 plus shipping to $0.60 including shipping or $0.30 for them to be disposed.)  From May 15 to August 15, we will be lowering these fees even further: any inventory over 270 days old may be removed for $0.20 per-Unit with no shipping fee ($0.40 with no shipping fee for Oversize Units), or disposed of for no charge.


Sellers have told us that they do not want their inventory sitting in our fulfillment centers, but rather want it shipping out to customers. In a recent survey of FBA sellers, 98.6% of respondents said that they don’t expect to store merchandise in FBA for longer than one year, and indeed most FBA inventory sells through much quicker than that. However, inventory that is overstocked or stored indefinitely in our fulfillment centers limits our ability to provide you with space for fast-selling products customers want. Through this program we will provide you with the information and tools to enable you to improve your return on your inventory investment and focus your business on products that customers desire most.


In advance of each Inventory Cleanup, we will notify you of any Units in your FBA inventory that will have been in our fulfillment centers for 365 days or more as of that date. The recently released Inventory Health Report helps identify your inventory that would be included in the Long-Term Storage program. Additionally, in June we will be launching functionality in your seller account that will automatically identify any of your Units that will have been in our fulfillment centers for 365 days or more on the next Inventory Cleanup date and will enable you to directly create a request to remove or dispose of them if you so choose. We will announce more details about this functionality as soon as it is ready for release, so you will be able to take action well in advance of the Inventory Cleanup on August 15, 2011.


As we release more inventory management features we will continue to send updates through e-mail, the FBA Seller Newsletter, and your seller account. Please review our online Frequently asked Questions for more information.


 Sincerely,

The Fulfillment by Amazon Team

 

 

SeekingAlpha disclosure - I am long Amazon and Google, eBay is an investor in ChannelAdvisor where I am CEO.

 

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