Amazon Storage Discount and Prime One-Day

Amazon Storage Discounts

Many Amazon Sellers are asking “what’s the deal” with Amazon’s new storage fee promotion being pushed in Seller Central? Amazon’s April announcement of storage fee discount of 50-75% underlines the marketplace’s intent to establish One Day shipping more widely as the marketplace pursues continued competitive advantage among online buyers through benefits for its Prime members. 

We see two big headlines here for brands on Amazon:

  1. Prime One Day shipping is coming
  2. Operational efficiency and agility will now be key components of success on Amazon.

While at first pass the promotion may seem fairly simple it is actually anything but.

Requirements:

  1. Eligible SKUs will either – 1) Have sold more than 60 units in the preceding 30 days or 2) Be selected by Amazon.
  2. Eligible SKUs will have inventory coverage levels equal to 4 – 8 weeks of days of sales for 21 or more days in a month and if meeting this requirement receive an Amazon Storage Discount on FBA fees for the same month.

ELIGIBILITY RESETS MONTHLY

Read it again…

ELIGIBILITY RESETS MONTHLY

Upside:

For eligible SKUs which a seller can support (meet inventory level requirement) the benefits are a reduced storage bill – as much as 75% discount on eligible SKU storage fees – and probably more importantly One Day shipping to customers which Amazon is marketing to sellers as a driver of increased conversion. Sell more. Pay Less to Store It.

“Prime One-Day” shipping is not yet a filterable option when Amazon customers are searching but we expect it to be in the future. This program will take some time to “land” – IE to shift consumer sentiment and be rolled out widely-enough.

In regard to storage fees brands will need to do the math for themselves and make sure they understand if the reduced storage fee is materially worth shifting their inventory buying and staging behavior AND/OR is the increased conversion/sales volume actually happening. For brands already selling this type of volume on Amazon it’s a clear win particularly with respect to increasing sales. For the rest – especially those on the fringe where sales may be constrained by working capital – the message is “get ready”. 

Downside:

This promotion signals Amazon’s intent to offer Prime One-Day shipping for sellers. Against the backdrop of Amazon decreasing/shuttering it’s vendor relationships this development is hardly a surprise. As the marketplace targets increased sales and bottom line performance sellers will be required to evolve. 

It is on the Seller: Amazon is rolling this out ,putting pressure on Seller’s supply chains and their inventory management capabilities. Sellers will need to manage “within the lane” keeping inventory levels within that 4-8 week coverage window for the month for each eligible SKU (again maintain 4-8 weeks of DOS during a 21-or-more day period).

We are advising brands to understand the full operational and product/business margin implications of the promotion before making operational decisions to pursue it. Does shifting purchase orders or taking on intermediate storage capability result in profit or increased competitive advantage?

This promotion will favor larger brands with more mature operational infrastructure – intermediate storage and the ability (purchasing power) to increase shipment frequency and or get short lead times for inventory production.

We are advise all brands to keep an eye on this development as this is only the beginning of what is sure to be a permanent shift in the marketplace.

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