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Amazon is expanding its revenue streams

The online retailer feels the inflationary pressure

•• 3 Min
Amazon is expanding its revenue streams

Amazon last week told third-party sellers who use its shipping services that it will introduce a "Holiday Peak Fulfillment Fee" from October 15 through January 14. The new fee is expected to increase the cost for sellers in the US and Canada by an average of 35 cents per item sold, according to an email to sellers seen by The Wall Street Journal.

Amazon said in the release that it is raising fees because it expects increased operating costs during the holiday season. It said it had previously absorbed such costs but that "seasonal spending is reaching new heights".

The fee increase is the second this year. In April, the company added a "fuel and inflation surcharge" to seller fees, which at the time averaged 5% of fulfillment costs.

The company also recently hinted that it plans to host a second Prime Day-like event for the first time in Q4. This summer, Amazon notified some sellers of an event planned for the last three months of the year and asked them to submit bids for the event by July 22. The company said it would be an "exclusive prime shopping event" in the fall. Amazon declined to comment on the event.

The latest moves could help Amazon boost sales in the fourth quarter, its most important period of the year, as high national inflation continues. The second Prime event also signals that Amazon is looking to build on the success of Prime Day, which has been held since 2015 and typically generates billions of dollars in revenue for the company.

Amazon has previously held a Prime Day in the fourth quarter. In 2020, Prime Day was moved from summer to the fourth quarter after the early days of the pandemic resulted in an overwhelming amount of orders on the site, prompting the company to postpone the date. That year, market research firm Insider Intelligence estimated that Amazon raised about $6 billion from the event, contributing to the company's $125.5 billion in fourth-quarter sales. FactSet analysts expect Amazon's revenue to top $156 billion in the fourth quarter of this year.

The second Prime event of the year is likely to boost year-end sales, which are critical to Amazon's overall performance this year. According to the company, customers bought more than 300 million items during Prime Day in July. Insider Intelligence predicted ahead of Prime Day that total U.S. sales from the event would reach approximately $7.76 billion, up 17% from last year's event in June.

In a recent research note from investment firm Citigroup Inc., analysts predicted that the second prime event "could boost volume to some extent ahead of the peak season" and the decline in earnings and revenue growth Amazon has experienced this year, could weaken after a two-year period in which pandemic-related shopping accelerated e-commerce.

Amazon reported a second straight quarter of sales decline and net loss in July. Company executives have stated that inflation is one of the biggest challenges, and the company has sought to cut costs to cope with the changing economy.

Amazon has tried to contain costs by subleasing millions of square feet of excess warehouse space, deferring construction of new facilities, and finding ways to terminate or renegotiate leases with outside warehouse owners, all while acknowledging it has built too much to meet pandemic demand. The company has also thinned out its workforce through turnover. The company laid off about 100,000 full- and part-time employees in the second quarter, leaving it with about 1.5 million employees. Usually, Amazon increases the number of employees in preparation for the holidays.

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