(Bloomberg)—Amazon.com Inc., No. 1 in the 2020 Digital Commerce 360 Top 1000, plans to make it harder for merchants to ship products themselves, meaning they’ll be more likely to pay the company to handle the task.
New shipping performance requirements, announced in an email to merchants Tuesday, will require third-party sellers to make deliveries on Saturdays and meet new one- and two-day delivery pledges starting in February. If the merchants fail to meet the targets, they risk losing a coveted Prime fast-shipping badge that influences which products shoppers buy.
Amazon said the changes are necessary because sellers’ deliveries are often late, while merchants say they worry they’ll be forced to pay for Amazon logistics without a chance to shop around.
The move has potential antitrust implications because merchants could be forced to raise product prices if using Amazon logistics costs more than paying United Parcel Service Inc., FedEx Corp. or the U.S. Postal Service.
Amazon introduced Seller Fulfilled Prime five years ago to help expand the number of products shipped quickly by letting some merchants handle the delivery themselves. The aim was to ease bottlenecks in Amazon warehouses since products would go directly from sellers to Prime subscribers, who pay monthly or yearly fees for delivery discounts and other perks — and typically spend more than other Amazon shoppers.
Now Amazon says the program’s performance is abysmal and is raising standards as part of an effort to reduce delivery times for many products from two days to one. Before the Covid-19 outbreak, fewer than 16% of Amazon orders shipped through Seller Fulfilled Prime in the U.S. met a two-day delivery promise, largely because participants couldn’t make weekend deliveries, Amazon said.
“Amazon is making significant investments in our fulfillment and transportation capabilities to make Prime faster, transitioning from a Two-Day to a One-Day delivery program,” the email said. “As we continue to improve the Amazon Prime experience for customers, we want to ensure Seller Fulfilled Prime meets customers’ expectations of Prime.”
By raising performance metrics that Amazon itself adjudicates, the company will entice more merchants to pay Amazon for logistics rather than competing services, said Shaoul Sussman, a legal fellow at the Institute for Local Self-Reliance, a frequent Amazon critic.
“Amazon is holding these sellers to a very high standard that Amazon itself doesn’t even follow,” he said. “It looks like the decision is to kill this program. The way to kill it is with very high cost of operating and forcing those who want to do their own delivery into Fulfillment By Amazon.”
In a letter to federal lawmakers last year, an online merchant accused Amazon of forcing him and other sellers to use the company’s expensive logistics services, which in turn forces them to raise prices for consumers. The letter also accused Amazon of “tying” its marketplace and logistics services together, a potential antitrust violation in which a company uses dominance in one market to give itself an advantage in another market where it’s less established.
Sellers said that delivering products on their own was potentially less expensive than Amazon’s services. But most used Fulfillment By Amazon anyway to avoid being punished for performance issues and because doing so meant their products had more visibility on the site. In the letter, the merchant said Amazon had raised its fees by 20% over the preceding four years until they were 35% more than competing services. Amazon disputed the allegations.
“As we move toward One Day Delivery, we are making changes to Seller Fulfilled Prime to provide customers with fast, consistent delivery, regardless of the fulfillment method,” an Amazon spokeswoman said. “We are informing selling partners now so they have time to adjust their business and have set up a dedicated support team to guide them through these adjustments and help them succeed.”
Amazon has been developing its own delivery operation for years to reduce its reliance on UPS, FedEx and USPS for the critical ”final mile” to a customer’s home. Providing logistics services to merchants is a fast-growing revenue source for Amazon. Third-party seller services, which include logistics, generated sales of $18.2 billion in the second quarter, up 52% from a year earlier and far more than the $10.8 billion from its profitable cloud-computing division Amazon Web Services.
That growth has strained Amazon facilities and pushed it to experiment with different programs meant to expand capacity. Another experimental program called FBA Onsite, which let Amazon’s merchant partners take Amazon inventory into their own warehouses and oversee its packaging and delivery, will be closed in February, Amazon told sellers Tuesday. The end of that program, which Amazon also attributed to poor delivery performance, will likely push more packages through Amazon’s logistics network.
Amazon has to keep reducing delivery times because it faces competition from big rivals such as Walmart Inc. that are investing in making same-day deliveries from thousands of stores around the country, said Neil Saunders, a retail analyst at GlobalData in New York.
“Anything that’s a monopoly doesn’t have to respond to competitive conditions in this manner,” Saunders said. “Amazon is working overtime to make sure it meets delivery promises and improves the experience because customers have more choices about where they can shop online.”Favorite