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 has been slowly marketing it to U.S. merchants in preparation for a 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 is a big deal
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 marketplace 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 US competition.
- Seller Flex provides Amazon with the ability to further their world-class logistics in the US and slowly become less dependent on their 3rd Party logistics partners. When a logistics partner ships a product that is seen as part of the Flex program, they get paid less by Amazon. Amazon likes to compete with their 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 business are 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 location of the third party sellers as a algorithm data point in determining costs for a transaction. By adding Seller Flex customers into the their logistics ecosystem Amazon is able to source products that are closer to customer who purchase 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 less 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 business 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 Centres are for all intensive purpose another grey area which Amazon will have the only access. This might seem like a small matter but the less partners and sellers know about Amazon operation the better they are able to price products to third parties.
Amazon are 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 programme – 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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