Amazon to Raise Seller Fees for Holidays, Analyst Sees Increased Focus on Margins

© Reuters. Amazon to Raise Seller Fees for Holidays, Analyst Sees Increased Focus on Margins

By Senad Karaahmetovic

Amazon (NASDAQ:AMZN) announced its plans to raise fulfillment fees during the holiday season as the e-commerce giant continues to grapple with soaring costs.

As of October 15, and until January 14, third-party sellers that use Amazon’s FBA services will be obliged to pay $0.35 per item sold in the U.S. or Canada. The new “holiday fee” comes on top of existing fees that sellers pay for using Fulfillment by Amazon.

“Our selling partners are incredibly important to us, and this is not a decision we made lightly,” Amazon said in the email.

This move from Amazon doesn’t come as a surprise as CEO Andy Jassy warned earlier this year that the company “can’t keep absorbing all those costs and run a business that’s economic.”

A Morgan Stanley analyst estimates that a $0.35-holiday fee will translate into an estimated $570 million in 4Q22 EBIT and $90 million in 1Q23.

“This incremental FBA fee provides AMZN with increased level of financial flexibility, giving AMZN another lever (on top of Prime price increases, incremental fuel surcharges, labor/fixed cost alleviation, etc) to deliver margin expansion and improved profitability through ’22 and into ’23 even through investment,” the analyst said in a client note.

“We also see these incremental fees as a further sign of AMZN’s pricing power (with sellers) and its confidence about the health of its overall seller and buyer ecosystem,” Nowak added.

A UBS analyst says the new action from Amazon “underscores commitment to margin improvement.”

“Amazon has historically been (perhaps excessively) focused on consumer experience above near-term margin, and the pendulum continues to swing towards a more balanced approach given cost headwinds from the pandemic, over-capacity, labor and broader inflation,” the analyst wrote in a note.

He estimates the company could benefit by generating $870 million more in 4Q revenues.

Amazon shares are down 1% in pre-market Wednesday.