Disadvantages of Fulfillment
by Amazon (FBA)

In the previous blog, we spoke about the advantages of Fulfillment By Amazon. Although the advantages are robust, the FBA has a few disadvantages associated with it. Diving straight into the water, here are the top disadvantages of FBA:

1) Costs:

FBA is not free. You have to shell out a pretty penny to keep your service going. The initial setup costs are inexpensive, the rates better than what you can negotiate, however, as the contract progresses you might have to spend well. Now, this might be an advantage or disadvantage for your business depending upon the type, value, and volume of products you sell. It is advisable to use FBA for high volume products, or use FBA when you do not have the resources to handle orders yourself, etc.

Control: You give up a lot of control of your inventory when you send it to Amazon. This is because; Amazon ships and packs your products the way they want.

2) Fungible Items:

These are the items that are identical and can be replaced with each other. For example, if on Amazon two different sellers (S1 and S2) offer the same item but have stored it in different locations (L1 and L2); FBA will ship the item closet to the customer irrespective of the seller the item was ordered from or if that seller has inventory at that location. So, Amazon might ship a product from Location L2 (where inventory from Seller S2 is stored) when a product is ordered from Seller S1 (while his inventory is stored at Location L2). For the simple reason that the customer is closer to warehouse L2, Amazon will pick and ship the item from there.

Since products can be of different quality, this can lead to negative reviews for a Seller; because the customer might have selected a seller for a particular reason. In a few cases, damaged or counterfeit items were shipped. Although the seller was not at fault, they had to face rather harsh consequences.

3) Labeling:

Amazon mandates its sellers to label every product (where fulfillment is done by Amazon) with a unique product identifier that has its own barcode. Although a banal task, this would take a considerable amount of time and money. You would have to buy labeling stickers, bags & boxes and a barcode scanner just to pack and ship your items to Amazon. If the labels are not visible or properly attached then Amazon might even return all items, making it even more difficult to profit.

4) Competition, Branding and Customer Loyalty:

You have to face the fact that Amazon itself would be your prime competitor among the plethora of other similar sellers like you. Moreover, there are not many branding options available on Amazon; the only things you can control being the product photos and description (if you are selling only via Amazon). Everything else is Amazon-branded and customers rarely get to see the end vendor. Hence, their loyalty is associated with Amazon and not your brand.

5) Lost Marketing Opportunities:

Amazon does not let sellers capture buyer’s email addresses. This deprives you of opportunities to promote your brand, up-sell and cross-sell products, launch new products, and more through email campaigns.

6) Payments:

Amazon settles payment with sellers once every 14 days; until that time, the money is held in an escrow account to cover the cost of possible returns. This means that you will not be paid for nearly two weeks, which can have an impact on your payment cycle.

7) Tax Compliance:

Amazon has many warehouses. More often than not, sellers are not notified as to where their product is stored. With many states in the US having different policies towards items stored, sellers are unsure about the sales tax compliance.

Using third-party fulfillment centers limits your control over inventory, although it is your item to sell. In addition, you will not completely know the details of the transaction. Choose wisely!

This has been a blog on the disadvantages of FBA. What are your thoughts on it? Share your feedback and suggestions by commenting below. Alternatively, you can write to us at info@i95dev.com