Amazon’s fulfillment service, though the subject of recurring seller complaints, is still the best bet for most small and midsize sellers, according to a veteran former executive with the company who was instrumental in developing Fulfillment by Amazon.
Dave Glick left Amazon after nearly 20 years in 2018, and now serves as chief technology officer at Flexe, a firm the offers outsourced fulfillment services to high-volume sellers – the ones he says move so many packages on a weekly basis that FBA is no longer the most economic option for them.
“If you are small,” Glick said in an interview, “your best bet is just to use FBA.”
That’s because FBA solves the problem of scale that smaller sellers would never be able to address on their own. He generally advises clients that to offer nationwide next-day delivery, they need to have inventory in a dozen warehouses across the country. Flexe has relationships with some 1,500 warehouses, and will handle the placement of inventory for enterprise-scale sellers. But for lower-volume operations, FBA can be a compelling choice for sellers who are aiming to keep pace with larger competitors in offering ever-faster delivery.
FBA also addresses a central challenge of customer service for online sellers, who are perennially dealing with complaints about damaged shipments or late arrivals. Outsourcing fulfillment to Amazon, then, can turn a weakness into a strength.
“Traditionally the merchants weren’t able to offer the same level of service as they could from Amazon,” Glick said. “Most of the problems that merchants have in customer service are around fulfillment.”
For that reason, there is a symbiosis that has developed between Amazon and its marketplace sellers that use FBA. For Amazon, which takes a cut for storing, picking and shipping sellers’ merchandise, FBA has become “a material part of the business,” Glick said.
And for sellers, in aggregate, it has improved their customer service and cut down shipping times, unlocking for many the coveted Prime badge, “which is what the sellers want,” Glick said.
“It’s a great tradeoff,” he added. “Amazon will give better service than anyone else. From a customer standpoint, you know you’re going to get two-day or better.”
So is FBA the automatic solution for all sellers of a certain size? Of course not.
For instance, as Amazon’s fulfillment system grows ever larger, it becomes more concerned with inventory management, encouraging sellers using FBA through various tactics not to simply park merchandise in its warehouses. That has variously involved nudges advising sellers to only send limited amounts of certain SKUs, capping the number of units they will accept, or playing the market game and assessing fees for merchandise that languishes.
So for sellers who trade in items that take longer to turn over, renting space from Amazon for low-volume items could get expensive, couldn’t it?
“For sure,” Glick said. “They don’t want inventory in their warehouse that just sits there, so they’ve put in relatively high space fees, which make it uneconomical to just store inventory there.”
Sellers who are concerned about ceding too much control of their operations to Amazon might also opt out of FBA, imagining a nightmare scenario where something goes wrong and they get booted off the marketplace, with all their inventory sitting in Amazon’s warehouses.
“Sellers are so dependent on Amazon just for the front end, and then if they’re in FBA they’re also dependent on Amazon for shipping, and sellers live in fear that they’re going to get kicked off the platform,” Glick said.
Using FBA can be the easiest path to earning the Prime badge, but it’s not the only way. With Seller Fulfilled Prime, sellers who demonstrate that they can deliver nearly all shipments in two days can earn the badge on their own. That could be the enterprise sellers who have outgrown FBA’s cost schedule, or smaller sellers who have other reasons not to use FBA. (Amazon is currently running a waitlist for sellers who want to join Seller Fulfilled Prime.)
For sellers with a presence on multiple marketplaces, Amazon has tried to make FBA a more appealing option with Multichannel Fulfillment, offering to warehouse a seller’s inventory and ship items purchased on third-party sites.
“One of the things sellers don’t want to do is they don’t want to split their inventory, because it adds complexity and cost,” Glick said.
So for a hypothetical marketplace seller who sells 90 percent of their product through Amazon and the rest on eBay or other marketplaces, “it makes sense for Amazon to ship all their products for them,” Glick said.
Unless one of those other marketplaces is Walmart, which has explicit provisions in its seller agreement barring Amazon from delivering items purchases on Walmart.com.
“They don’t want someone to order on Walmart and it shows up in an Amazon box,” Glick said. (Another fulfillment services firm, Deliverr, specializes in helping sellers navigate the multichannel conundrum, including Walmart.)
If there is one throughline from Amazon’s retail fulfillment strategy, it is to “put inventory close to the customer because that leads to faster shipping and lower costs in the final mile,” Glick said.
“In many ways, Amazon’s a very simple retail business. They focus on low prices, enormous selection, and fast delivery,” he said.
Over its history, in each instance when Amazon has accelerated shipping times, it has seen business grow, and for a pretty basic reason: “Customers love fast, free shipping,” Glick said.
“Basically, what they’re saying is we need to deliver faster,” he said. “The one thing that physical stores have that we don’t have is instant gratification.”