Part Two in a four-part series on how new FBA fees have changed the Amazon and bookselling landscape.
In this article:
- Why Amazon megasellers may be in serious trouble.
- How the megaseller business model has been destroyed.
- Megasellers flee the cheap book game.
- Free webinar Friday: “Outsourcing Amazon” (register here)
I’m getting very heavy in this one. So settle in.
In Part One of this series, I covered every way new FBA fees have affected the average Amazon seller.
In Part Two, we’re covering a different angle: How these new fees may be plunging FBA megasellers (i.e. our biggest competition) into crisis.
What new FBA fees mean for lowball FBA sellers
Like I said, I’m getting heavy here. Nothing I’m going to talk about is anything short of existential for our Amazon megaseller competition.
So here we go…
Amazon megaseller crisis #1: Sellers can no longer price $3.99 above cheap MF offers and get the top spot.
FBA megasellers now face a literal existential threat.
Consider these facts:
- FBA megasellers make up the better part of our lowball Amazon competition in the book market.
- Until last month, a majority of book on Amazon were a penny + postage.
- The entire Amazon FBA megaseller business model is built around high turnover & low profit per book. (I.e. “selling books for pennies and making up for it in volume.”)
- High book turnover is achieved by having the top spot in the Amazon listings.
- For the majority of all books on Amazon, the top spot in the listings now results in a negative net profit.
The significance of the last point cannot be overstated. The entire business model of megasellers is now obsolete.
Take an average paperback book on Amazon with a glut of used merchant fulfilled copies. Since penny books have now all but vanished (see previous article), you’ll find merchant fulfilled copies have bunched up in the 25 cents to 50 cents range.
Now say you’re the average FBA megaseller. Your entire business hinges on high turnover, and having that top spot in the Amazon listings. Owning the Buy Box is not enough. To claim that top spot, you need to price your book at $4.25 to $4.50.
Major problem here: For the average book, you’re not breaking even as an FBA seller below roughly $5.50. Your entire business was predicated upon getting that top spot, and now instead of making you 10 cents, you’re actually losing $1.
In one day, many sellers may have found that the majority of their inventory was suddenly selling at a loss.
I’m not an Amazon megaseller, nor do I know any. But they must be absolutely freaking out right now.
It is virtually certain that FBA megaseller turnover is plummeting
Faced with a lose-lose scenario of either forfeiting the top spot (i.e. cheapest Amazon listing) or lose money on each sale, Amazon megasellers must be losing their minds. Again, I have no inside insight here, but I see no light at the end of the tunnel for penny booksellers faced with new FBA fees that destroy their model.
Don’t take my word for it. If you’ve been selling books on Amazon for any amount of time, you know that most books for which there are over 100 used copies use to have the top spot occupied by an FBA offer.
Go back and look at those same books on Amazon now. In fact, it is extremely difficult to find any book priced less than $1.50 for which the top spot is occupied by a Fulfillment by Amazon offer.
The FBA megaseller business model has been destroyed.
Amazon megaseller crisis #2: The megaseller repricing crisis
I’m a militant proponent of manually repricing all medium-to-high demand inventory on Amazon, no matter what the time cost. Amazon repricing software does not work and will cost you money.
Fact: Third party software (including scanning and repricers) cannot “see” any FBA offer that’s not priced in the bottom twenty. You simply cannot tell a repricer to match the lowest FBA offer and have it do this with accuracy the majority of the time. It’s simply not possible.
A lot of sellers are in denial about this, but its not a conspiracy theory. It’s a limitation of Amazon’s API and a verifiable fact.
Now consider that you cannot claim the top spot (i.e. merchant fulfilled price + $3.99 shipping) for the majority of books on Amazon now without losing money.
Now consider that with the new fees, it is extremely rare for an FBA offer to be priced in the bottom 20.
What’s a megaseller to do?
Your only option (as I see it, not being a user of Amazon repricing software myself) is to set your repricing rules like this:
- Price $3.99 higher than lowest MF price for all books that will return a positive net profit (i.e. any book with an MF offer of $1.50 or more, roughly).
- Price all books with a MF offer below $1.50 at $5.75 (or whatever, just to return a few pennies of profit).
Pricing rule #1 can be effective. With #2, its a different story.
Because now Amazon megasellers are aiming with a blindfold on. They can set an automatic price of of $5.75, but they have no idea where that puts them on the offers page. Lowest? Third lowest? They have no way to know. They’re just letting their repricer throw darts blind.
Remember that before new FBA fees, megasellers could gleefully price a flat $3.99 above everything and return at least a few pennies of profit a majority of the time – even on penny books.
Amazon megaseller crisis #3: Megasellers exit the sub-$10 game
I chose two of the bigger FBA megasellers and did a little spying on their Amazon storefront to answer the question: How are megasellers responding to new FBA fees? How have they adjusted their FBA pricing?
Warning: What follows is not a thorough scientific look at new Amazon megaseller pricing practices. Just an anecdotal look at two of them. But I believe like any top sellers, they are bellwethers of Amazon megaseller trends.
A look at FBA megasellers RentU and Apex Media
Here’s how their pricing has changed since new FBA fees were implemented. And its extremely revealing.
RentU: They have jacked up their prices on all their sub-$10 books (that I looked at) to $35 and more.
Apex Media: They responded similarly, only more dramatic. Apex has surged prices on most of their sub-$10 books to $200, $300, and more.
Also noteworthy: Apex Media did not have the top spot for a single book I looked at (note I only look at a small sampling). It’s as if to say: “We give up.”
Yes, all of this is extremely weird. So what’s going on here?
When you raise your Amazon prices so high they’re not even competitive, it raises a couple of theories:
- They have no intention of selling their books selling on Amazon. Instead, they’re deliberately making their prices not competitive, and instead are selling these books on other channels and using Amazon to fulfill the order.
- They raised prices to effectively hit the “pause” button on the cheap book side of their business, stop the hemorrhaging, and buy time while they take stock of what to do to cope with new FBA fees.
Ultimately, it appears many FBA megasellers are effectively out of the of the sub-$10 book game. Very good news for us.
What’s to come
In the next article (posted Monday), I will use hard data I’ve obtained to prove that new FBA fees have caused a massive number of Amazon sellers to actually leave the business.
Get ready for an FBA Mastery exclusive.
Endnote: Live webinar event, Monday
I’m doing my (almost, maybe) legendary webinar, “Outsourcing Your Amazon Business,” one more time.
- When: Monday, 12pm PST / 3pm EST
- What: A complete system for outsourcing or automating the three hardest parts of your Amazon business.
- How: Register here.
PS: If you’ve noticed any megaseller trends I’ve missed here, please leave a comment below.
PPS: Used bookstore stock is still for sale in Portland.
As mentioned in the last article, a used books and magazine store is Oregon is selling over 250,000 items for pennies each.
PPPS: One more time: Last chance to register for my “Outsourcing Your Amazon Business” webinar Friday.