Hike in Amazon seller fee likely to reduce discounts for customers

Other e-comm players such as Flipkart, JioMart, and BigBasket may follow suit

Starting May 31, Amazon India will increase seller fees for a number of key categories such as apparel, beauty, groceries and medicines, which industry experts said could make the products costlier on the platform as sellers might reduce discounts offered to consumers.

Experts also believe that Amazon India’s move could spur other e-commerce players such as Walmart-owned Flipkart, Reliance’s JioMart, and Tata-owned BigBasket to increase seller fees as the firms focus on profitability and cutting losses. Seller fee is the commission Amazon charges sellers on its platform.

“All the major e-commerce players in the country are making losses and are focusing on profitability. Now that Amazon is increasing seller fees, this would lead other players to also hike seller fees,” said a person aware of the strategy of large e-commerce firms in India. “It is like in the telecom industry, if Reliance increases calling rate, then Airtel and Vodafone would also increase tariff.” 

Industry sources said if sellers’ profitability gets hit as a result, they will either reduce discounts or may suffer losses.

“At a time when your profitability is getting hit and growth is slow for everyone, you are increasing seller fees. Due to this the prices of the products may go up or the sellers would reduce the discounts that they were giving earlier,” said a person aware of the matter.

In the beauty products category, which includes hair care, bath and shower, Amazon will hike commissions to 8.5 per cent for products that cost less than Rs 300. Earlier, it charged a 7 per cent fee for items that cost less than Rs 500.

In the apparel category, the fee has been raised from 19 per cent for items worth over Rs 1,000 to 22.5 per cent in some cases.

For over-the-counter medicine, it has been increased from 5.5 per cent to 12 per cent for items that cost less than or equal to Rs 500 and 15 per cent for products priced above Rs 500.

The fee for groceries, including herbs and spices, has been reduced to 2.5 per cent for items priced below Rs 500 from 4.5 per cent. However, the fee for transactions worth more than Rs 1,000 in the same category has been increased to 9 per cent from 8 per cent.

An Amazon spokesperson said the seller fee revision was based on factors like changes in market dynamics and macroeconomic considerations. “As a part of our recent fee revision, we have made certain changes to our fee rate card including the introduction of new fee categories and also reduction of fees in certain categories,” said the Amazon spokesperson. “Our endeavour is to ensure that fees on Amazon continue to remain competitive for sellers so that the sellers find value for doing business on Amazon.”

Amazon announced 9,000 job cuts in the last round of layoffs earlier this year, bringing the total number of people who were laid off to 27,000.

Experts said because of the current global downturn, every company was conducting cost-benefit analyses.

“The cost of operations is rising significantly for all businesses including SMEs (small and medium enterprises), which has compelled the entities to bring in changes, and online marketplaces are not averse to these developments,” said Kazim Rizvi, founder of The Dialogue, a tech policy think-tank. “e-commerce is traditionally a technology-driven sector, where the cost of maintaining the infrastructure and logistics are also getting higher and hence players are compelled to bring changes in their operations as they move forward and acquire more customers.”

Some industry experts said e-commerce firms keep changing seller fees for various purposes, including taxation and to meet certain rules. As per government rules, marketplaces cannot fiddle with the prices of products or dictate pricing to retailers. However, industry sources said the reality was that the actual price was often determined by the platform and not the seller. They said sellers may have a certain desired price and the platform adjusts the price to benchmark against its rivals.

“A platform can adjust its own margins and cost structure to keep the price higher or lower,” said an industry executive, who didn’t wish to be quoted.  “Just because seller fee has been increased doesn’t mean that the products sold by these e-commerce firms would become more expensive, because that is a function of competition between the platforms,” said the person.

For example, the person said a 1-tonne air conditioner cost about Rs 30,000 a month ago, but was now being sold at about Rs 24,000 as the summer has not taken off in the North and sellers have a lot of inventory to clear. “So a 5 per cent change in the commission rate will not have a direct impact on selling price,” said the person.

Vinod Kumar, president of India SME Forum, said Amazon seems to have gone ahead and balanced the fee structure, listening to the needs of the small seller community. “A majority of the categories have been left unchanged, and in that aspect, it is natural that there will be an increase in charges for some categories like luxury goods, including cosmetics, fashion sandals and travel accessories,” said Kumar. “Amazon has made significant investments in technological innovations and the proposed fee structure seems to be a balancing act.”