Is Amazon’s new liquidation scheme right for you?
Amazon’s new new “FBA Liquidations” and “FBA Grade and Resell” are now being used by Sellers in Europe and the UK - but would they be right for your business?
If you are not familiar with the initiative, Thompson and Holt ran an initial guide to it in November. Under the programme, Sellers can recover some value on eligible items, as well as avoiding paying Long-Term Storage Fees, disposing of inventory to landfill, or dealing with the hassle of having it returned.
Amazon aims to arrange a buyer for the eligible items that you submit for liquidation within 30 days of your submission. If you are successful, Amazon will then transfer the amount that the buyer pays for these items, minus fees, to your seller account. They then say that the net recovery value will appear in your account within approximately 60 days after the shipment is marked as Completed in the ‘Removal Order Details’ page in Seller Central.
The figure you receive is calculated using your sales history, the average FBA selling price on Amazon and the sales history of the specific ASIN. When that has been established, third-party liquidators will then purchase the inventory for a set recovery value. Fees are being waived for all orders submitted until the March 31, 2021. Starting the following day, Amazon will then deduct a fee for each liquidation order and the Seller will receive the net recovery value. Once any eligible inventory has been submitted in a liquidation order, storage fees will stop for that inventory, freeing up both space and money for the Seller.
Now the scheme has started to be used by Sellers, would it be right for your business? Thompson and Holt managing partner Craig Gedey looks at some of the issues involved.
Gedey said: “This isn’t the first time Amazon has trialled such a scheme. There was a similar attempt made in America which was close down in 2017. So why should this be any different?
“The first thing to consider is the fees already incurred for other outcomes surrounding unwanted goods. If they have been returned and are found to have been opened or damaged, they can either be sent back to the Seller or be disposed of. Both are chargeable services for items you will never see again, and are calculated on the weight and size of items.
“Then there is excess stock, which can rack up storage fees in Amazon’s warehouses, again dependent on size. 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 is almost ten times the standard storage fee and makes storing excess stock an expensive business.
“Under the new schemes you could have two options - ‘FBA Grade and Resell as Used’ for customer returns, and ‘FBA Liquidations’ for excess stock and customer returns. Under the first, Amazon will inspect your returned product and grade its condition before returning it to the FBA warehouse for resale. Processing fees apply for this.
“Amazon used this example in their description of the scheme: ‘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.’
“The second option, FBA Liquidations, can also be used for customer returns, but it is really targeting bulk liquidation of excess stock. If you 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.
“As an example, 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 might be a small fraction of the original selling price, but is still better than paying Amazon $0.80.
“In conclusion, and having spoken to Sellers using the programme, it is better financially for them to take up these options rather than just have inventory returned to them. It also seems fairer for Amazon to offer some kind of recovery fee rather than charging for them to be removed from their warehouses - as well as being better for the environment than them ending up in landfills.
“The full impact of these schemes remains to be seen, and some observers have pointed out that it would be in buyers’ interests to return items and then look to buy them at a lower, used price. Whether that eventuates on any kind of scale remains to be seen, and at Thompson and Holt we’ll be keeping a close watching brief before reporting any other significant patterns.”
Still not sure what Amazon liquidations are then read here.
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