Is The Amazon Bubble About To Burst...

[Mister B]

It's been well documented that Amazon lost money in the last quarter and in order to trim costs, have now implemented a £10 threshold for most order to qualify for Super Saver delivery.

Makes sense in one way but it will be interesting to see how consumers react. From a retailers perspective though, it's forced our hand in two areas:

1. Wherever possible, we try to hit a key psychological price point of £9.99 which is a real winner saleswise. However, with the introduction of the threshold, we see sales dipping a little as the consumer will now have to pay for delivery. To counter this, we're putting prices up to £10.99 as we believe that the sales dip caused by the price rise will be more than offset by the sales retained through those looking for free delivery and the additional profit generated from those sales. This way, Amazon get to pay all of the delivery charges which gives us a little more value for money from our FBA fees and the goods become eligible for Prime. (Once again.)
2. Our two best selling products used to retail for £4.99 with £1.99 P&P. We then moved onto the FBA programme and in order to cover the FBA fees, (and loss of P&P income,) raised the price to £6.99. Noting that we will still be taking the hit on FBA fees even though the goods do not qualify for free delivery or Prime, we see little sense in continuing to offer these items under the FBA programme. Instead, we're opting to keep the prices at £6.99 with free P&P and fulfill them ourselves. They're very easy to pack, all go at large letter rates and so we should see a nett rise in margin.

Does anybody else see the change to Super Saver threshold affecting them and if so, how do you anticipate reacting?

Mister B

 

[joshgeake]

I genuinely think it's just an experiment.

This is clearly their quietest time of the year for order volume. If it's not enormously affected then they'll stick to it. If they are hit big then they will triumphantly change back to free super saver in mid-October for the Christmas season sales.

 

[mconridge]

I think it may change peoples perception of what free delivery is. Too many customers think that because it's free delivery, delivery does not cost the retailer.

Amazon are making the move now because they can't sustain their current position. What business makes a NP of 0.01% or whatever it was in the last quarter? The risk outlay to run a business which turns over billions of pounds but only makes a few million is too high.

 

[Tim R-T-C]

Don't forget the increased revenue potential from people adding an extra order to their basket to qualify for free P&P.

 

[mconridge]

Don't forget the increased revenue potential from people adding an extra order to their basket to qualify for free P&P.

Balanced against the orders they will potentially lose from being more expensive

 

[Tim R-T-C]

Balanced against the orders they will potentially lose from being more expensive

Hence the experiment with the threshold perhaps.

I wonder where Amazon actually makes the most profit - I would guess in the higher value market, for electricals etc. where people are more concerned with buying from a reputable retailer than shopping around to save a few pennies (as they do with DVDs etc.) so reducing sales of low value items could save quite a lot of costs (takes a lot less time to package a blender than to put ten £1 DVDs into packaging).

 

[e-vulture]

It must surely be good for third party sellers who offer "free" delivery on low value items ?

 

[Tim R-T-C]

It must surely be good for third party sellers who offer "free" delivery on low value items ?

Probably quite good for Amazon - they still take their percentage cut and don't actually have to do anything.

 

[AbsolutNut]

Probably quite good for Amazon - they still take their percentage cut and don't actually have to do anything.

Yes, especially with Amazon's massive fee hikes earlier this year.

People must remember however the loss they have reported is due to investment in digital services - quite aside from their retail operation which continues to be very successful. It is no secret that postage services - particularly Royal Mail have been getting more expensive over the last 2-3 years and I can see this continuing.

Amazon know this and they are probing the market to see if customer's will accept this increase in threshold to qualify for free del.

I am very pleased that we resisted the temptation to succumb to the constant "FBA is the best thing since sliced" emails we get on a weekly basis and approaches by various staff members. I understand they gave FBA participants very little/no notice of the increase in free delivery threshold.

Back on topic, given Amazon's dominance (No.1) in the UK, I doubt very much if this £9.99 delivery threshold will have much of an effect. Amazon's sales continue to grow while eBay seems to have flat-lined. Play.com (Rakuten) are struggling and we have scaled down our exposure on Play.com as we are concerned at the alarming drop in traffic this year since they became a third-party marketplace only (and since the removal of Low Value Consignment Relief from the Channel Islands) from April 2012.

We just wish that another big player e.g. Google or Tesco would get their act together and open a marketplace to give vendors another option.

Steve

 

[amac]

I disagree with the OP - Amazon is clearly investing heavily in infrastructure which goes a long way towards explaining recent losses. The fact is, they have scale and efficiency that few other retailers have as well as burgeoning other businesses e.g AWS.

 

[kulture]

I thin that Amazon is here to stay, but the effect of the change in free post for FBA is interesting. It will be even more interesting when the FBA price changes come into effect at the end of August. Those with light items will be badly hit.

 

[greengecko]

I thin that Amazon is here to stay, but the effect of the change in free post for FBA is interesting. It will be even more interesting when the FBA price changes come into effect at the end of August. Those with light items will be badly hit.

Got any more information on these FBA changes? I can't find anything, although will put it to our FBA manager for clarification.

 

[kulture]

See
http://services.amazon.co.uk/services/fba-uk-price-increase-notification.html

 

[Merchant UK]

How to dodge Amazon's new delivery charges? Just add a bargain basement book to your order

Amazon announced last week that customers must spend a minimum of £10 on certain items to use its 'Free Super Saver Delivery' option.

Electronics costing less than £10 incur a delivery charge of £3.99, while products from the retailer's clothes, DIY, groceries, health, sports, home and jewellery ranges will set shoppers back £4.28 for delivery plus a charge of £1.73 per item, equivalent to £6.01.

For example, under the new rules, a £6.75 mug that previously qualified for free postage, will now cost an additional £6.01.
However, customers can cut the overall cost of their order if they add products that are exempt from the new charges, including books, DVDs, CDs and video games.

Many second-hand or severely discounted items in these ranges cost significantly less than the new delivery charges.

As a result, customers are scouring the site for these bargains and adding them to their orders, even though they do not want them.
Several exam revision guides cost less than 50p and adding the 32p book 'AQA Anthology Study Guide Poems from Duffy, Armitage, Pre 1914' will allow any order qualify for free delivery, saving £5.69 on the delivery of the mug.

 

[joshgeake]

I tried it this morning but it didn't affect the shipping charge?

[http]://s12.postimg.org/m5sdr0nd9/amazon.jpg

 

[Mister B]

Thanks for the replies to date, but it would appear that my original question was not phrased clearly enough...

For all those using FBA and selling items for under £10, how do you see the raise in threshold affecting you and if appropriate, what do you plan to do about it?

I know that lots of people will add other low value items to their basket in order to qualify for free super saver delivery but what about those that won't? What about those retailers who joined FBA on the understanding that their lightweight low value items would attract free super saver delivery and put there prices up to accomodate the costs? Do they simply drop their prices and ditch FBA?

What also of all of the spin that Amazon give sellers about their customers loving free delivery...are they now backtracking on that statement?

FWIW, I actually think that their move to raise the threshold is long overdue and brings them in line with other european and American marketplaces.

Mister B