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Amazon’s new fees on sellers likened to a ‘kick in the gut’

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Amazon.com Inc. Sellers they fell into an economic trap. Earlier this year, the e-commerce giant made changes to the fees it charges, essentially shifting more of its operating costs to the small businesses that generate most of the products sold on the site. Worse for sellers, the number of buyers is declining.

According to a report published on Thursday by Adobe Inc., in the first four months of the year, American consumers increasingly chose the cheapest products in almost all categories. This makes it harder to pass on price increases to buyers, and online sellers are struggling to make money.

Duncan Freer, who sells weighted blankets and sleeping masks on Amazon, expects his profit margin to drop to 8% from 20% as a result of the new fees. One of them, imposed in March, charges a fee on parcels sent to the company’s logistics centers. That will raise the cost of shipping two pallets of Freer’s products to Amazon to more than $800, or four times what it cost him in October, he said. Amazon has reduced the cost of fulfilling each customer order, but Freer said that only partially offsets the new fees.

“Amazon is just grabbing more and more,” said the Chicago businessman, whose sales on the marketplace are about $500,000 a year. “It’s like a kick in the stomach”

Amazon says the new fees are intended to reflect its own cost of distributing inventory across the United States so that more products can be delivered in a single day, helping to boost overall sales for online retailers. Some fees have actually dropped. In January, Amazon cut commissions for low-priced clothing sellers, a move that merchants interpreted as an attempt to blunt competition from Chinese fast-fashion startup Shein.

“When we announced the new fee changes in December, we estimated that sellers would see an increase of an average of $0.15 per unit sold, which is significantly less than the average fee increases announced by other fulfillment providers,” company spokeswoman Mira Dix said in an emailed statement by e-mail. “As sellers adapt to these changes, we’ve seen the actual impact become even smaller, with many more sellers seeing a decline in the average fees they pay to Amazon.”

Still, many sellers say Amazon mainly benefits from higher fees, which is reflected in the company’s profits. Seller services revenue, which includes the popular Fulfillment by Amazon logistics operation, has grown at a faster rate than fulfillment spending in each of the last seven quarters. Amazon’s seller services revenue of $34.6 billion for the period ended March 30 was up 36.5% from two years earlier, more than tripling the rate of growth in fulfillment costs, which were $22.3 billion in the period.

In last month’s earnings report, the cloud computing division’s strong performance overshadowed rising tensions between Amazon and its sellers. Amazon Web Services generated over 60% of the company’s operating revenues in the first quarter, although it accounts for less than 20% of revenues. However, sales in its core e-commerce business grew at a slower pace than the number of units sold, another sign that consumers are keeping a close eye on their budgets. Amazon’s marketplace model helps the company continue to grow despite the slowdown by charging for advertising and logistics.

Antonio Bindi, a Brazilian businessman who has been selling household storage and kitchen products on Amazon for five years, said the fee structure has become increasingly complex. Of particular concern is the fee introduced in April, charged when sellers’ stocks run out. That’s in addition to previous storage fees, which increase when slow-selling inventory piles up in Amazon warehouses. That’s too much for his 20-person team, so he limits his 500-product catalog to 400 to simplify the operation.

Five years ago, he said, “Amazon was a platform that would make it easier to do business and let you focus on what you are good at, like building great products. You could just send your products to Amazon and they would take care of everything. Now it takes an entire department to deal with the complexity. The costs are prohibitive.”

San Francisco dealer Neil Ayton sells golf yardage books, yoga equipment and pickleball equipment. One of his most popular products are yoga sticks, which practitioners use for stretching. It was 59 inches, the longest it could get to avoid the higher tier of fees. Earlier this year, he noticed that Amazon had lowered the size limit and suddenly his yoga poles were one inch too long. Shipping costs for each product increased from $10 to $26, and Ayton began losing $3 per sale. He remembered hundreds of yoga sticks from Amazon warehouses and cut an inch off each one, but he said that only minimized his losses. Now it plans to end its Amazon business.

“Amazon kind of teases you,” Ayton said. “It’s great when everything works well, but you never know what surprise tomorrow will bring.”