Amazon is playing hardball with consumer goods vendors like Procter and Gamble, raising shipping fees for heavy and/or bulky goods like diapers and beverages, two sources familiar with the matter told Bloomberg. Amazon shoppers will also find it more difficult to buy cheap, small items like toothbrushes, soap and lipstick that are expensive to ship, the sources said.
Update: An Amazon spokesperson declined to comment on the report, adding that the company does not comment on speculation.
The e-commerce giant's mobile app and website feature a curated "$10 and Under" section, with small, inexpensive items in the e-tailer's women’s, men’s, electronics, gifts, home décor, household and watches categories. "$10 and Under" is available to all Amazon customers, Prime and non-Prime, who benefit from the free shipping offered on products in the section.
Amazon appears to be taking a page from Walmart’s playbook, passing on costs to suppliers in order to maintain its price edge. Amid an escalating price war and the higher costs of online fulfillment, the retail giants need vendors to take on more of the expenses and customers to consolidate their purchases.
The e-commerce giant already pushes tiny items into larger orders by offering them only as "add ons" to larger purchases, which are subject to minimums even for Prime members, which otherwise don’t face minimum order amounts for free two-day shipping. But otherwise Amazon has been raising prices for some time and that indicates there could eventually be cracks in its momentum, according to retail analyst Nick Egelanian, president of retail development consultants SiteWorks International.
"Unlike in the past, no guarantee at all that prices on the site will be the lowest available either in brick-and-mortar stores or on the web," he told Retail Dive in an email. "On the revenue, aside from increasing prices, Amazon recently quietly increased the price of Prime by a whopping 60% annually for its Prime Pantry customers by imposing a monthly $4.99 subscription surcharge."
In November, Walmart reportedly also began quietly raising its online prices for key consumer goods, including boxed macaroni and cheese, toothbrushes and pet food, and announced lower prices for online shoppers picking up orders in stores. Walmart U.S. e-commerce chief Marc Lore last month met with suppliers including Procter & Gamble, Unilever, Kimberly-Clark and Clorox in an effort to more consumer products on board that are priced at least $5 but preferably $10 or more, to boost online profits. Egelanian said to look for Amazon to also escalate efforts for customers to pick up orders in lockers or stores.
Research shows that Amazon and Walmart are in a tight race, and that Walmart is closing in online. In 2016, Walmart's online prices were, on average, 3% higher than Amazon's, but last year, prices at Walmart.com were just 0.3% more expensive, according to a November study by retail data analytics firm Market Track. That squares with similar research from e-commerce analytics firm Profitero, which found that, on average, Walmart's prices were just 3% higher than Amazon's across 13 categories; Walmart was priced lower than Amazon in beauty (the only category where it actually beat Amazon) and came close in sports and outdoors, and baby products.
Meanwhile, Amazon's shipping costs continue to bedevil it. Shipping costs in the fourth quarter grew 31% year over year, while in other quarters they outpaced sales; Amazon spent close to $20 billion on shipping alone in 2017. Knocking out costs for cheap items could help. For individual items, there is a threshold for minimum economic viability that depends on logistics efficiency, according to Profitero VP of strategy and insight Keith Anderson. Low-priced, heavy or bulky items are unlikely to yield much profit, because their asking price won’t likely cover shipping handling, so selling premium products or selling in bulk can balance that, he told Retail Dive in an email.