E-Commerce Faces Challenging Peak Season with excess Inventory, prices rise, unauthorized 3P sellers and increased fulfilment fees.
It has been a tumultuous past two years for both e-commerce and brick-and-mortar retailers across the world. While the COVID-19 pandemic brought with it a host of supply chain issues, record-breaking inflation rates have tempered consumer spending habits as food and energy prices skyrocket. It has proven to be a bad combination for big box retailers, who after desperately trying to secure inventory in a supply crunch, are now left with excess inventory to sell to consumers with less and less disposable income.
This trend is quite troubling for retailers – both online and offline – as we enter the peak shopping season. The holiday shopping season is typically the most important trading period of the year and is often depended upon to deliver the bulk of annual profits to the bottom line of most e-commerce brands. In 2022, however, e-commerce retailers should prepare for a new wave of economic headwinds as inflation is set to have a large impact on how consumers spend their holiday budgets.
The Challenges Facing E-commerce this Peak Season
According to a survey conducted by financial firm Deloitte, the average American household has budgeted $1,455 USD to spend on holiday-related items, including decorations, experiences, and gifts this year. In the same survey, Deloitte found that 66% of respondents pointed to inflation as the reason for their plans to spend less this holiday season. With household finances in the United States and beyond being at some of the weakest levels in more than a decade, consumers plan to buy fewer gifts this year.
The timing of this slowdown in consumer spending is ill-timed. Due to the combined effect of both the pandemic and the Great Resignation, retailers have been grappling with supply chain issues and a lack of inventory coming in. Now that these supply issues are finally easing, retailers are finding themselves with an influx of inventory in a challenging economic climate to sell it in. Overwhelmed with inventory, retailers have resorted to offering steep discounts, cancelling orders, and employing pack-and-hold strategies to make room for incoming holiday inventory.
As retailers unload inventory with massive prices, there is a looming risk that this inventory will make its way via unauthorized 3P sellers on various eCommerce marketplaces such as Amazon, eBay, Google Shopping and more.
Amazon Tightens the Screws Further with Fulfilment Fee Hike
Making matters more challenging for e-commerce brands, Amazon’s fulfilment fees have increased by over 20% since 2020. For third-party sellers on the platform, Amazon will be charging $5.06 USD for a one-pound item during the fall and holiday season (October 15 to January 14, 2023). This represents an increase of 45% since 2020. On average, these new holiday fulfilment rates will cost roughly 35 cents per Fulfilled By Amazon (FBA) item. The issue isn’t isolated to FBA, with third-party logistics providers such as FedEx also raising their fees and introducing peak holiday surcharges.
The Bottom Line
On the surface, the combination of inflation woes and excess inventory offers a grim outlook, there is increased pressure for e-commerce brands to hit revenues and earn better margins this year.
According to the Deloitte survey, shoppers will be looking to get ahead of their holiday shopping and opt for lower prices. While many big box retailers have resorted to liquidating excess inventory with hefty discounts, often selling at a loss, there is an added risk of unauthorized Third-Party sellers procuring this stock and listing it on Amazon and other marketplaces for below MAP/RRPs, further cutting the profits. In addition, brands paying more for Amazon Fulfillment Services, meaning tighter margins for brands this holiday season.
Enhancing the marketplace monitoring by using robust brand protection solutions like GreyScout before the holiday season will ensure speedy unauthorized 3P seller takedowns, resulting in minimum 3P noise on the Amazon Buy Box and other eCommerce marketplaces, resulting in better consumer experience and also, more revenue for brands this holiday season.
