Amazon is testing a new program which gives FBA sellers new options for inventory which either can’t be sold as new or which isn’t selling at all.
In addition to the options to dispose of FBA inventory, or have it sent back to you, sellers invited to take part in this new trial have the option to resell customer returns or to liquidate excess stock. The new “FBA Liquidations” and “FBA Grade and Resell” programs are currently being trialed in Europe and the UK.
A previous FBA Liquidations program in the US was closed down in 2017. But with both sustainability and seller relations under the spotlight, a full relaunch in the US and worldwide could be on the cards.
Would you be comfortable with using Amazon to resell or liquidate your products? Is it a good option from a financial point of view?
What happens with FBA returns today?
When an order that was shipped out from an Amazon FBA warehouse is returned by the customer, it goes back to one of Amazon’s returns processing centers, not directly to the seller. It is inspected there and, if it is still in new condition, Amazon returns it to the fulfillment center to be sold again.
However, if the product has been opened or is otherwise in a used condition, it becomes stranded in the warehouse until the seller decides what they want to happen. Right now they have two options:
- Have it returned to them
- Have it disposed of
Both options are chargeable services. Even having a returned product disposed of, so you never see it again or receive any money for it, comes at a cost.
Fees for removal or disposal are based on the weight of the item, starting at $0.25 for an item under 0.5lbs in weight. Fees are higher for oversize items and those that require special handling.
What about excess stock?
If you have stock in FBA that is simply not selling, it will sit on the shelves in Amazon’s warehouses and rack up storage fees. For standard size products, these are $0.75 per cubic foot per month from January to September, and $2.40 per cubic foot per month from October to December.
Products that remain in FBA for more than a year attract monthly long-term storage fees in addition to the standard storage fees, at $6.90 per cubic foot with a minimum of $0.15 per unit. That’s almost ten times the standard storage fee.
Clearly, keeping stock that is not selling in FBA is a very expensive business. Just like returns, sellers currently have only two options to avoid these fees: have the inventory sent back to them or have it disposed of, for a fee.
So what’s new?
The programs being trialed provide sellers with two new options:
- “FBA Grade and Resell as Used” for customer returns
- “FBA Liquidations” for excess stock and customer returns
Here’s how they work.
FBA Grade and Resell as Used
This program is for customer returns that Amazon has classified as “not new”. After sellers choose this option, Amazon staff will inspect the product in more detail and grade it as Like New, Very Good, Good or Acceptable (products in worse condition than this cannot be resold). The seller sets the price, then Amazon will return it to the FBA warehouse and relist it on the site. From there, the process is the same as for any other FBA product.
Processing fees apply for this. In Amazon’s talk on the new program from their Accelerate online conference, the following example is given:
In summary, a product which sells for $30 when new is returned by the customer and cannot be sold as new. It is graded as “Good” and the seller sets the price set $24. A Grade and Resell processing fee of $2.20 applies, in addition to the usual FBA and selling fees, and the seller receives $12.40.
If the seller asked Amazon to dispose of the item, or return it to them instead, they would pay a fee of $0.80.
Storage fees are not shown here, and of course the recovery values shown are dependent on the item actually selling in a used condition. Used items do not appear in the Buy Box, so buyers have to seek them out.
This option can also be used for customer returns, but it is really pitched at bulk liquidation of excess stock.
When sellers choose this option, Amazon deals directly with third party liquidation companies, selling your excess stock to them and handling all the negotiation, removal and transport. The liquidation companies typically pay 5-10% of the new item value, and processing fees apply.
Here’s an example:
This time, the liquidation company pays 7.5% of the item value and Amazon charges a referral fee and removal fee. The seller receives $1.11. This is a small fraction of the original selling price, but still better than paying Amazon $0.80.
Would you take these options?
For sellers who pay to have inventory returned to them, but find themselves unable to sell it elsewhere, either of the new options are better for them financially. The same applies to sellers who pay Amazon to simply dispose of their returns.
Also, Amazon’s relationship with sellers is being scrutinized around the world, and it seems fairer to provide some way to recover value from customer returns and excess stock, than charge for them to be removed from Amazon’s warehouses.
A bigger issue is that providing a way to resell items, whether directly to shoppers or via a liquidator, is clearly better for the environment than sending them to landfill or having them gather dust in a warehouse.
So is Amazon doing sellers a favor by creating this program? Do the fees and liquidation rates seem reasonable? Do you have sufficient trust in Amazon to accept the grades they give your returned products?
But the implications of this program go beyond Amazon. The liquidation industry is not known for its straight-shooting. After they get their hands on your products, will they find their way back onto Amazon, perhaps miraculously restored to new condition?
And then there’s buyer fraud. Once buyers realize that they can return items then rebuy them as used at a lower price, will return rates go through the roof?
Let me know what you think in the comments below!