Amazon.com, the online retailer, is expanding a program designed to allow independent sellers to use its network of distribution centers to store and ship their products, according to Jeffrey P. Bezos, Amazon’s founder and chief executive.
Bezos also says,
We have this beautiful, elegant, high-I.Q. part of our business that we have been working hard on for many years,” he said. “We’ve gotten good at it. Why not make money off it another way?”
This move makes a lot of sense for the Internet retailer who has developed expertise in online fulfillment systems over the years and until recently managed order fulfillment for well-known brick and mortar shops like Toys R’ Us and Borders, who have since parted ways with Amazon. While the company still manages online shipping and order fulfillment for Target, the void left by the departing retail giants could potentially be filled by revenues from smaller independent sellers.
According to Techfold, Amazon Fulfillment works in four steps:
- Send your inventory to Amazon
- Amazon warehouses it
- Amazon fulfills it – finding it, packing it, combining it with other items, and shipping it
- Amazon manages customer service (returns)
While some small sellers are optimistic about using Amazon’s vast infrastructure for their shipping needs, not all are biting.
For two and a half years, John Brown of Lafayette, Ind., has sold rare books and educational audio and video programs on sites like Amazon, eBay’s Half.com and his own site, Shelfmasters.com. To handle orders, he rents a 4,400-square-foot warehouse and employs two full-time workers.
Shifting fulfillment to Amazon’s warehouses would save him $2,000 a month in rent and utilities for his warehouse, he estimates. But Mr. Brown has held back so far, in part because Amazon does not yet let Fulfillment by Amazon’s customers in the United States ship their products internationally, or by overnight delivery.
He is also bothered by the use of brown Amazon.com boxes for the merchandise he sells on the other e-commerce sites. “My other selling sites are not going to think well of that,” he said, because it could lead to consumer confusion. “And it’s not like I can afford to anger those other sources.”
These other ‘sources’ could very well include eBay. In addition, some smaller businesses are also wary about competition from Amazon itself during peak holiday times, when priority may be given to Amazon’s internal orders. Analysts who cover Amazon aren’t very excited either and some question if diverting resources away from core business is a wise move.
Expanding the fulfillment program to include non-Amazon sellers “almost suggests they are so confident with their core business that they can expend resources and management time on this,” said Safa Rashtchy, an analyst with the investment bank Piper Jaffray & Company. “But the core challenges have never been larger. To some degree this is a distraction.”
Whether or not, Amazon has worked out the kinks in its system and whether it can cost-effectively manage this expansion to include independent additional sellers remains to be seen.