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Amazon Delays Fee Hike, Lowers IPI Threshold for 2021
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Amazon announced that it will delay the increase in fees for independent sellers who use its Fulfillment by Amazon (FBA) service to June 1, 2021. The retail giant has made the decision to postpone its annual hike in fees, which would have gone into effect in the beginning of 2021, to support sellers who have struggled to keep their business in good standing during the COVID-19 pandemic.
Companies, including couriers, traditionally dial up their service fees every year. FedEx and UPS have increased their general rate of package deliveries by 4.9% in 2021. Additionally, both couriers will apply surcharges on certain package categories in mid-January as the rise of residential deliveries continue. The increase in fees is also attributed to the market shift toward residential deliveries over commercial, which were more profitable for the couriers.
A blog post by Jeff Wilke, the CEO of Amazon’s retail unit, revealed the company is approaching its merchant fees differently this year due to the pandemic.
“Other logistics providers have already announced their annual fee increases for 2021,” Wilke wrote. “In a normal year we’d be doing the same, but this isn’t a normal year and we’ve made the decision to postpone our annual fulfillment fee adjustments and continue to absorb the costs we are incurring on your behalf.”
FBA and IPI Threshold Tradeoffs for Sellers
Amazon sellers are encouraged to utilize the company’s FBA service, as it stores, packs, and ships their products to customers. The service is especially favorable for small and medium-sized businesses who may not have the resources necessary to operate on their own.
Sellers who use FBA will have storage for their product assortment and standardized shipping. Amazon noted the expansion of its delivery network and services has been beneficial for its selling partners since it allows them to reach more of their customers.
In early 2020, Amazon raised its shipping fees on popular small items by 2.9%. The company also raised the monthly rent it charges sellers to store their products in its warehouses by 8.7%. Storage costs remained the same throughout the holiday season. Amazon’s recent decision to pause its fee hike applies to sellers in the United States, Europe, and Japan.
The Seattle-based retailer has also lowered its Inventory Performance Index (IPI) threshold from 500 to 450, which was effective on January 1, 2021. IPI is a score Amazon references to determine how efficiently a seller is managing their inventory (the score ranges from 0–1,000).
The company reported in its sellers forum that sellers with an IPI of 450 or above in week 51 of 2020 will not be subject to storage volume limits starting on January 1, 2021. Sellers with an IPI below 450 in week 51 of 2020 will continue to experience storage restrictions.
While Amazon’s recent changes aim to help its selling partners, some sellers have expressed their concerns with its services and IPI score system. Sellers have notified U.S. regulators and the European Union of their one-sided relationship with the retailer, according to Bloomberg. Many merchants feel the need to invest in advertising for their products to stand out on Amazon’s marketplace despite paying for other services the retailer offers.
When it comes to IPI, sellers’ main concern with the lowered 450 score is that it does not alter the restock limit on a product level. There is a limit in storage space per category, which includes apparel, standard size products, above-average size products, and more. Some sellers find the inventory framework complicated and claim that Amazon does not help them understand.
Considering the feedback provided, time will tell if Amazon will continue to make adjustments to its operations to better serve its sellers. As of now, Amazon’s selling partners can take advantage of its postponed uptick in FBA fees and a lower IPI threshold. Wilke also stated in his blog post that the retailer plans to share more details on its fee hike in the spring.
Amazon decided to postpone its increase in FBA service fees from the beginning of this year to June 1, 2021. The delay in the fee hike is beneficial for sellers as it pauses a greater investment in the retailer’s fulfillment service and enables them to allocate more funds towards keeping their business afloat during the pandemic.
Furthermore, Amazon has also lowered its IPI threshold score from 500 to 450. The lowered IPI score requirement will prevent more sellers from being subject to storage volume limits. Some Amazon sellers, however, have communicated their concerns with the company’s services overall. Amazon may continue to modify its operations to further accommodate its sellers.
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