Amazon Fee Hike Could Spur Marketplace Showdown

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Fears that Amazon’s increasing third party seller fees are becoming untenable could lead to small retailers rushing to exit the marketplace.

Online retail and marketplaces business, Amazon, may soon have a revolution on its hands, triggered by ongoing fee hikes across its third party seller services.

Amazon rose to prominence not as the online book reseller it first launched as, but as a competitor marketplace to the likes of eBay over ten years ago. At the time it was noticeably cheaper to sell via Amazon, and it was also more popular for its additional services, such as Fulfilment By Amazon (FBA).

Now, after a series of fee hikes, many smaller sellers have raised complaints regarding their squeezed margins, which will eventually force them back onto alternative platforms.

Growing Concerns

Even the larger merchants, such as Wayfair, are beginning to weigh their options. Currently, Wayfair sells via Amazon, eBay and Wal-Mart‘s online marketplace, as well as its own websites.

Niraj Shah, CEO of Wayfair explained the scenario in an interview with Reuters.

“If they increase fees too much, some sellers will decide to not sell there anymore.

“That’s against Amazon’s plan, which is to get as much selection as possible on their site,” he added. “The vast majority of Amazon sellers are perfectly happy to go to any marketplace offering meaningful volume.”

A Case for Exodus

While Amazon claims the additional fees are caused by rising costs, it appears the tech giant may be attempting a very fine balancing act – one which may eventually cause it to lose business to other, more affordable competitors.

Chris Morley, Managing Director of Online Market Experts, believes that Amazon may be beginning to push the boundaries of some sellers’ tolerance.

“The Amazon model is already walking a fine line when it comes to ‘fairness’,” Morley says. “The marketplace already competes with its sellers on certain product ranges, based on data it collected from those sellers in the first place. Of course, fees are an inherent part of selling, but it comes down to what is fair and reasonable – this may be a step too far.”

Kat Simpson, a seller who also educates others how to sell on the Amazon market, said the company charges her 50 (US) cents per item to return unsold inventory from its warehouses but just 15 cents per item to destroy it, she said.

“I would have said everybody needed to try FBA last year. Now I would say no,” she said, according to Reuters. “If you are selling items under $25, you won’t do as well on Amazon as on eBay profit wise.”

Meanwhile, eBay has already launched onto the offensive by announcing a round of fee restructures that it claims make it even more affordable than Amazon’s marketplace.

“We believe the new pricing structure makes eBay the most competitively priced commerce platform in the US today,” the company said in a statement. “These changes continue to make eBay the partner of choice for merchants.”

Seeking a Viable Alternative

Other than eBay, there are several potential competitors beginning to ramp up operations in the US, which may cause Amazon to eventually reconsider its pricing restructures.

Wal-Mart currently offers a very exclusive marketplace, which features only six merchants, including Wayfair and eBags. It is understood to be seeking to expand its product range, so we can expect the number of merchants to increase over the coming months.

Google is also highlighted as a major threat, with the search company already owning all the necessary pieces to be enable a very competitive marketplace offering. We have already begun to see Google’s hand with launch of Google Shopping and it is also said to be testing a same-day delivery service with a selection of retailers in the US.

Will an Amazon giantkiller appear on the marketplace scene?

It seems unlikely that Amazon would allow an exodus to occur. Instead it will probably continue to bring out supplementary service offerings in an attempt to justify any further price increases. At worst, it can always lower some fees in a bid to maintain its sellers.