Amazon lets sellers handle some Prime fulfillment, and it’s paying off
January 6, 2016 03:28 PM
In May Amazon.com Inc. contacted select merchants who sell on its marketplace to see if they would be interested in participating in a program it had under development.
Amazon reached out to sellers who had a solid track record for getting products to consumers’ doorsteps quickly from their own warehouse. The resulting program, called Seller Fulfilled Prime, lets marketplace merchants flag their product listings as eligible for Prime two-day delivery, a distinction that until then was available only for sellers’ products shipped from an Amazon warehouse as part of the fast-growing Fulfillment By Amazon service.
Fast-forward to the close of 2015 and Amazon says sellers have added the Prime flag to 500,000 marketplace SKUs. That’s important for sellers because the Prime flag is seen by members of Amazon Prime, the paid subscription service that grants customers two-day shipping on these products at no charge, along with other benefits. Prime members spend an average of $1,200 annually with Amazon versus $700 for those without Prime, according to estimates from Consumer Intelligence Research Partners, which further estimates 47 million Prime members as of Sept. 30.
“Once an item becomes Prime the sales velocity on it tends to go up pretty dramatically,” says Rob Latham, CEO of List Co. Inc., an e-retailer of decorative goods for events, such as candles, candle holders, vases and glassware. List has been doing business as Quick Candles on Amazon’s marketplace since 2008. Latham’ s company had experienced the Prime surge with the 10% of marketplace SKUs for which it has used FBA for nearly three years. Amazon this week said the number of sellers using FBA grew more than 50% in 2015, following year-over-year growth of 65% in 2014.
Quick Candles was one of the marketplace sellers Amazon asked to test Seller Fulfilled Prime, which initially required that sellers be able to deliver in two days to the lower 48 states. “We understood the power of that brand, and we saw this as an opportunity to get that badge on a ton of our products. We jumped in as hard as we could,” Latham says.
First, Quick Candles, which is based in South Carolina and sells direct at QuickCandles.com and QuickDecor.com and through eBay Inc.’s marketplace, had to move inventory for the dozen SKUs it chose for the program to a logistics firm in Salt Lake City to make sure it could deliver those goods in two days to consumers in the West. “We can cover the entire East Coast and east of the Mississippi with ground shipping. But once you get further west the only way to get packages in two days is to use two-day air. Two-day air costs are back-breaking,” Latham says. He declined to say which logistics firm the retailer uses. The SKUs went live in July.
Latham says Amazon had told the e-retailer it would be adding an option to let sellers select which SKUs appear as Prime-eligible based on the consumers’ location. For example, Quick Candles could show the Prime flag on listings only to Prime consumers whose default shipping address is where Quick Candles can deliver to them in two days using ground shipping from Piedmont, S.C. Amazon rolled out that option Oct. 15, and Quick Candles was the first merchant to test the regionalizing option, Latham says. Once that option was live, Quick Candles went all in with some 2,000 SKUs in the areas it could reach with ground shipping in two days—about 60% of the U.S. population, he says.
Amazon set the regional option up quite narrowly. Most states in the lower 48 are broken into markets within those states. For example, Latham says New York is broken into eastern New York (including New York City) and western New York. Packages shipped ground from its Piedmont warehouse can reach eastern New York addresses in two days, whereas packages destined for western New York addresses take three days. In the template Quick Candles uses, it flags eastern New York as Prime-eligible and western New York as having free standard shipping available.
Quick Candles is selling roughly 20% more of the products newly made Prime-eligible compared with the volume sold a year ago through Amazon, Latham says.
Quick Candles has maintained the same service levels despite the increased order volume, and Latham says existing staff handles the greater volume with “a little better planning.”
Amazon keeps track of how quickly marketplace orders ship and requires that merchants maintain certain standards. Latham says that to keep the Prime badge 98.5% of orders must ship on time. Quick Candles has a 99.9% on-time ship rate, and its order cancellation rate—orders that sellers cancel after the consumer places them due to out-of-stocks or other reasons—is “well less than 1%.” The Prime maximum is 1.5%, Latham says. When a marketplace seller fulfills an order they have to convey the tracking information to Amazon.
“They will quickly remove the badge if you fall outside the metrics,” and Amazon is watching those metrics like a hawk, Latham says. “That Prime badge brand means everything to Amazon.”
For example, Amazon paused the Seller Fulfilled Prime program in the final days leading up to Christmas rather than risk some orders fulfilled by sellers missing Christmas Eve delivery and upsetting Prime members.
Quick Candles continues to work with the logistics provider for the products it had in the initial test and plans to move inventory of additional SKUs to that company this spring so it can show the Prime badge to consumers reachable by ground in two days from Salt Lake City as well. That addition would mean Quick Candles could market SKUs as Prime to about 85% of the U.S. population, Latham says.
The retailer also continues to use FBA for some items—particularly lightweight goods where Amazon’s fees are less than what Quick Candles can get from shippers—because that service gives the merchant 100% coverage.
Latham anticipates by this time next year, many more marketplace merchants will be invited into the Seller Fulfilled Prime program and the 500,000 SKUs currently available as Prime and fulfilled from sellers will shoot up “tremendously.”
Amazon is the No. 1 e-retailer in the Internet Retailer 2015 Top 500 Guide.