Thursday, March 20, 2008

Amazon fulfillment

As my son is hard at work building his new Lego Beach House, I had some time to look into how the box arrived at our doorstep.

I bought the item on Ebay in new and sealed condition. There was something odd about the shipping: (1) It arrived super fast: 2 days after purchasing. (2) It was shipped in an Amazon box and by Amazon. The Amazon labeled stated: ship to me; shipping is billed to the Ebay seller. That looked odd.

Was the seller just a front for Amazon? Nope, as the billing address was a private party in New York.

Was the eBay seller buying his items on Amazon? Doubtful, since the items is purchased on auction, there is no guarantee of making money if he has to buy it full price on Amazon. Let's run down the numbers:
  • Lego store cost: $30
  • Amazon store cost: $25 + shipping ($9.99 for comparable 2 day shipping) = $34.99
  • Final bid price: $16.75 + $8.99 (shipping) = $25.74
Yesterday I read a blog post (Techcrunch: Amazon takes the humans out of fulfillment) on the missing puzzle piece: Amazon Fulfillment. In simple terms: Amazon becomes your personal climate controlled warehouse, while providing you with software hooks to ship and track your shipments. You would think this was the turf of Fedex or UPS.

Such services do not come free. Is my Ebay seller making any money?

First, let's look at the Amazon Fulfillment Pricing.
  • Storage: $0.45 (assuming it was only stored for one month)
  • Order Handling: $1.00
  • Pick and Pack: $0.75
  • Weight Hanlding: $0.88 (2.2 pounds)
  • Total shipping to customer: $3.08
Secondly, It is unknown how much the seller sold to ship it his items to Amazon. Let's assume he is charged $2 per item.

Total shipping costs: $5.08 (Note he charged $8.99 on Ebay. Amazon Fulfillment definitely appears cost effective for my seller.)

Finally, I estimate the New York Sales tax (4%) : $1.

Since this was a new item, my Ebay seller must have purchased the item gross for no more than $19.50 to make any money. This is probably a close call. Lego profit margins are just north of 30%. So for a $30 item, the whole sale price must be around $17-$18. Just a guess. He must be selling a whole lot of Lego sets to make a living.

From the looks of it, Amazon Fulfillment API will make it easier and faster for Ebay powersellers to increase volume, while lowering shipping rates. Definitely, a missed opportunity for UPS, Fedex or UPS.

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