Amazon has transformed online selling with its
marketplace approach and has also redefined how startups and corporations scale
computing assets – like servers and services – via its Amazon Web services
business. However, they are still dependent on third parties for delivery and
logistics services provided by USPS, FedEx, and UPS. These services represent
some of Amazon’s largest expenses, as promptly delivering packages to customers
around the world is core to Amazon’s vision of eCommerce.
Amazon has been testing a service which may be
encroaching on the turf of FedEx and UPS. The service began two years ago in
India and Amazon have been slowly marketing it to U.S. merchants in preparation
for national expansion. Amazon is calling the project Seller Flex. The idea
is quite simple – Amazon is willing to collect products from third party
merchant warehouses and then deliver to customers.
Why Seller Flex?
Seller Flex provides Amazon with additional
capacity to ensure that products can be shipped to customers inside their 2-day
window. Amazon has a problem that they are not keen on discussing externally:
their warehouses are full, which has historically presented a problem during
the busy holiday season. Amazon has tried to negate this by scaling storage costs
during the busy season and by limiting replenishment of products that go unsold
by third party merchants, in an effort to optimize warehouse spacing.
What else does Seller Flex offer Amazon?
· It provides Amazon the opportunity
to embed themselves into the operations of third-party sellers that are not
keen on using Fulfillment by Amazon (FBA). By learning why these marketplaces
sellers are not using FBA, they are able to further optimize their FBA
offering. Essentially Seller Flex is FBA coming to merchants that are not using
the program.
· Seller Flex provides Amazon the
opportunity to create a wider assortment of products that are able to be
shipped to customers in the ‘Prime’ window. Amazon leverages the wider
assortment as a competitive advantage against their U.S. competition.
· Seller Flex provides Amazon with the
ability to further their world-class logistics in the U.S. and slowly become
less dependent on their 3rd Party logistics partners. When logistics partnerships a product that is seen as part of the Flex program, they get paid less by
Amazon. Amazon likes to compete with its customers and Flex provides a
negotiating tool for better rates with FedEx and UPS, leveraging increased
volume and scale.
· Amazon can use Seller Flex as
another data point to gain insights into sellers who are not using FBA. By
being able to generate data on delivery times and whether a business is meeting
the required standards of performance, they are able to learn about the impact
this group of third party merchant would have if they choose to open the Flex
program to other groups of third party merchants.
· Amazon is using this as a tool to
learn about locations to counteract the fact that Walmart / Jet uses the location
of the third-party sellers as an algorithm data point in determining costs for a
transaction. By adding Seller Flex customers into their logistics
ecosystem Amazon is able to source products that are closer to a customer who
purchases the products.
Amazon is able to save costs that are spent on logistics
and Seller Flex provides them an opportunity to lower overhead costs that end
up as operating expenses.
Who are the big losers if Seller Flex succeeds?
FedEx and UPS are the most obvious losers if
Seller Flex succeeds. Amazon is arguably the largest customer that drives a
large part of their revenues. It provides Amazon with negotiation power to
ensure that they get lower rates from these third-party logistics businesses.
FedEx and UPS will experience tension with Amazon as they begin to experience
fewer products that are shipped via their services.
Third-party logistics services and warehouse
operators are also losers as customers are going to experience Amazon doing the
same operations for less money. Competing on price with Amazon is, in general, a
bad idea as they are able to take losses where other businesses in general want
to be profitable. As Amazon becomes more entrenched in these businesses that do
not use FBA it is a matter of time before customers leave Third-party logistics
services and warehouse operators.
Amazon competitors are suddenly looking at
another data point that they are unable to track as products shipped that are
not in Amazon Fulfillment Centers are for all intensive purpose
another grey area which Amazon will have the only access. This might seem like
a small matter but the fewer partners and sellers know about Amazon operation
the better they are able to price products to third parties.
Amazon is able to offer hazardous products
such as batteries, spray paint and other things that provide additional costs
to ship cross country. By leveraging a seller closer to the customer via
the Seller Flex program – Amazon is able to ship these items in a faster
manner. Amazon has over the years been fined by the FAA and other
government.
Brands and Seller Flex
If brands are not using FBA to ship products to
customers it is vitally important that if they are invited to use the Seller
Flex concept from their third party warehouse – to take the opportunity and
start using Seller Flex. Use Seller Flex as a way to test whether your
logistics operation is run in an efficient manner and then consider using
Seller Flex for a period of time. It is of vital importance that you understand
that Amazon will have expected standards of operation and failure to act
appropriately will lead to lower sales and possible account suspension. After
using Seller Flex for a period of time – please consider joining the FBA
program to ensure that your products can be shipped in a fast manner.
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