Amazon FBA can be a boon for small businesses. It’ll reduce the need for you to handle picking, packing, and shipping. You’ll also be able to offload customer service like processing customer returns. Better yet, you won’t need to stack mountains of product around your house, creating a maze of dangerously tall towers. Nor will you need to rent out expensive warehouse space.
What’s the catch with FBA? The service may seem too good to be true–you’ll be able to automate your business to a certain degree, and you’ll save time and money on labor.
Nevertheless, there are some serious reasons why you should keep in mind when you’re thinking of taking the FBA plunge, and those who don’t do proper research may end up losing their investment.
Gated categories or category restrictions
Let’s say you’re selling a product in a category that isn’t gated or restricted by Amazon. You’ve tested the waters and know that the item sells a healthy number per month. You’re ready to take the plunge and order tens of thousands of dollars more from your supplier to sell through FBA. While Amazon processes your shipment, you wake up one morning to an email about the suspending listing. You may be required to provide invoices, prove a business relationship with the brand owner, or submit some forms for safety or some other reason. Or Amazon may have decided to prevent you from selling that item for whatever reason. Even if you’re PL, the product you’re selling may face new safety requirements such as UL, FDA or other conditions.
You may think that there’s no way this will happen to you, but hundreds, perhaps thousands of sellers woke up to such a situation throughout 2016 and 2017 due to Amazon’s restrictions on music, DVD, book, and other categories. In some cases, sellers were unable to sell as Used – Like New, while in other cases, the entire category was restricted to brand owners and their authorized resellers, forcing smaller sellers to create removal orders and list on other platforms. Sellers of lights and items including batteries found new UL and battery restrictions.
Now you have thousands of dollars worth of inventory sitting in a warehouse that you can no longer sell on Amazon, and you’ll have to pay for storage and removal fees. Your inventory is now in limbo until Amazon ships it back to you.
Without FBA, you could simply sell your product on another venue without waiting while you appealed the suspension or product listing. Or you can get UL certification while avoiding those storage fees.
One last reason to consider is that Amazon will not take specific products in their fulfillment centers. These products may include hazardous materials like lithium batteries. You’ll receive a message when you list your items for FBA if this is the case.
If you use this option for FBA because you believe that it’ll be faster since you won’t need labels (you’ll use the manufacturer barcode instead), you may be in for some big surprises. Commingling inventory means that the stock closest to the buyer will ship regardless of who the product belongs to, so if your commingled item is on the west coast and an east coast buyer orders it, the same commingled item from the east coast warehouse will ship.
The benefit of commingled inventory for buyers is that all items arrive at the buyer’s location quicker, a critical factor for many buyers who expect 2-day shipping. You’ll also avoid having to cover up the manufacturer UPCs with your own FNSKU labels. Commingling saves a little bit of labor and materials.
Where people get into trouble is that the commingling of inventory means that sellers who commingle their counterfeit items may affect you as well. If a seller commingles inventory and uses fakes, then your customers may potentially receive those counterfeit items. When buyers ultimately open an Amazon complaint, then Amazon suspends you for selling counterfeit items. A false claim can be a massive headache, as your selling privileges and settlements are frozen until you can prove that your products are authentic.
Commingled electronics are often easily faked, and many scam sellers will do just this. They’ll print authentic UPCs on their fakes and send them to Amazon as commingled. Then when Amazon fulfills orders, anyone with the same item will suffer the consequences of counterfeit inventory.
Amazon picking, packing, and fees
Amazon FBA is excellent in that it handles the picking, packing, shipping, and customer service, but that means that all of these aspects are out of your control. You can quickly check how much Amazon charges for FBA so that you can compare how much it’d cost you. Here’s their current pricing as of February 2017 for January-September, and there’s no guarantee that Amazon won’t change its pricing again next year (or next month).
The one drawback is that you’ll lose control over the whole process. When you handle picking and packing, you can ensure that customers will receive their items in new condition, and because you’ll know your product, you’ll be aware of any issues when you get the item for packaging. Amazon warehouse workers may not necessarily be knowledgeable, nor may they care, about your item if they notice that some damage has taken place somewhere along the process. For example, warehouse workers shipped apparently damaged items in some cases.
Similarly, you’ll lose control over the packaging. While Amazon does a decent job overall, the workers do make mistakes. If your item is an expensive electronic, then workers may throw it into a bigger box. The result is that you’ll get more returns and complaints, resulting in hits to your seller metrics.
All the fees may eat into your already razor-thin margins, and you may discover that hiring a worker or doing some of the packing and shipping yourself may be a cheaper alternative. At the very least, you can control the quality of the product going out, and you can avoid scams from other sellers.
While Amazon FBA handles all refunds, they don’t often check the condition of the item. In some cases, sellers have reported that customers have returned used or damaged items, and FBA has resold it as new. FBA then ships the used or damaged item to another customer. The result is a complaint and a hit on the seller’s metrics. If you have a lot of sales, then these kinds of problems can build up quickly, resulting in a suspension of your account.
When you use FBA, you essentially give up control of that product. Amazon may decide to refund buyers for items outside of the return period, or they may have issued a refund for any other reason. Because they handle customer service, you don’t have much choice in the matter. Whether or not you’re on the hook for these returns is unclear, though most sellers have received reimbursements for such cases. If you fulfill your orders, then it’s clear that a return request from 3 months ago should be denied unless you have some warranty or generous return policy.
Lost, misplaced, or damaged inventory
There are so many processes that go on when using FBA. You’ll have to deal with a shipping carrier, multiple warehouses, and different workers processing your inventory. At any time during this process, your products may be lost, misplaced, or damaged. Many sellers report that the number of items they send in sometimes doesn’t match what Amazon receives. While sellers can file a claim for reimbursement, Amazon doesn’t always pay for the cost of the inventory–they may replace the product instead (in some instances damaged, customer returns, or no longer saleable).
These other potential issues with FBA aren’t necessarily widespread, but they do occur with some regularity. We’ve listed them below because they don’t warrant a more thorough discussion.
- FBA picking, packing, and shipping the wrong item(s)
- Hit on seller performance metrics when it’s FBA’s fault (incorrect shipping, long ship times, etc.)
- Delays and other issues when shipping to Amazon warehouse and processing products
- Inadequate or non-existent reimbursement for damage or mistakes caused by Amazon
- Fulfillment centers fudging numbers in the hopes of avoiding liability for damage
For many of these issues, it’s difficult to tell whether the fault lies with the seller or with Amazon. For instance, processing delays could be a result of inappropriate or incorrect labels placed on products. These are issues any business would have to deal with, but the problem is that you’re at the whim of the fulfillment centers when using FBA. Responses to emails may take days or weeks, and resolutions can take months to resolve if you’re lucky.
Regardless of these drawbacks, there are numerous benefits to using FBA. This article only focuses on the issues sellers have experienced using FBA. As always, you should do your research before you decide on a course of action. FBA has automated a lot of the processes for small sellers. Not having to pick, pack, ship, and deal with customer service frees businesses to increase their sales volume and reduce labor costs. If you price your products properly, then these losses aren’t as damaging. Unfortunately, the customer has to pay a higher price because of Amazon’s errors.