What is Anti-Prime Day?
Every year, Amazon has a massive sale called Prime Day. We started Anti-Prime Day as a way of helping people to understand what happens when they purchase on Amazon. Over 50% of all sales on Amazon come from third-party sellers, i.e. small businesses. Yes, Amazon has made it possible for small businesses to reach an incredible number of people, but it has come at the expense of many small businesses and peoples lives.
Be a Better Buyer - Guide to Understanding Amazon
When you buy a product on Amazon, Amazon charges the seller a referral fee. These referral fees range from 8% to a whopping 45% depending on what the product is. Beauty products, 15%. Clothing, 17%. Books, 15%. Jewelry, 20%. Amazon device accessory, 45% (15% for non-Amazon accessories).
On top of the referral fee, the seller also has to pay to sell their products on Amazon. This could either be $0.99 per item sold or $39.99/month to sell more than 40 units per month.
When was the last time you purchased a product that didn’t have that Prime badge on it? Do you even look at products that aren’t Prime? Of course not. We all probably click that first button in the top left corner that filters everything out that isn’t Prime. But did you know, the only way for a seller to get that Prime badge is to send their products into an Amazon warehouse. This is called Fulfilled By Amazon (FBA) and the sellers pays the shipping to send their products into one of these Amazon warehouses and then pays monthly storage fees to Amazon to have their products available for sale.
When you buy a Prime product from a third-party seller, Amazon will fulfill the order at the sellers expense. This is called the FBA fee, or basically it is the shipping cost (picking, packing, box, and postage). This may not seem like a lot but lets look at the following example.
The seller buys a small backpack for $20 from her wholesaler. She then lists it on Amazon for $40. Generally, 50% is considered the retail margin. Once someone buys the bag for $40 and Amazon takes their cut, Miss Seller made $8.58. You may think that isn’t too bad, but we aren’t quite finished. This $8.58 does not include selling plan fees, FBA storage fees, optional services, any other potential shipping expenses, and other costs the seller may incur. You may be wondering what all of those costs come out to be, and it is difficult to know what “other costs” means to Amazon. We can break down some of this using the same example as above.
- Item sale price: $40.00
- Cost of goods: $20.00
- Category referral fee: $6.00
- FBA fee: $5.42
- Selling plan fee: $0.99
- FBA storage fees: $0.79 (this goes up to $2.40 during October-December)
- TOTAL MARGIN: $6.80 (not counting sending product into FBA, optional services, other potential shipping, and other costs)
This also does not include any advertising on Amazon that the seller may want to do. Have you ever seen the Sponsored Products on Amazon? They are the first products that come up in your search results. How does the seller get to be the first product in a search result? She pays for it via keyword bidding. The more you are willing to spend, the higher and more often your product will show.
I don’t know about you, but that doesn’t seem like a very good return on investment. But what happens when a customer returns that backpack? The customer doesn’t pay for the return and neither does Amazon. Amazon bills Miss Seller those shipping costs. The backpack is shipped back to an Amazon warehouse, where it is inspected and determined if it can be resold. If the tags are removed or it looks like the backpack has been used, Amazon will ship it back to Miss Seller at her expense. How much profit do you think is left after this transaction? Anything? What does Miss Seller do with a used backpack once it comes back to her?
We aren’t saying that people cannot make a lot of money on Amazon. They can. But can an independent seller, who has a storefront, employees, insurance, property taxes, etc., etc. really make money on Amazon? I don’t think so, unless their product price is so inflated that it offsets all of Amazon’s fees.
The question really boils down to what matters to you. Would you rather buy a product that is sold by Amazon on the backs of the independent seller, or buy a product from a local seller that is vested in your community and the success of small businesses?
Why it is Impossible to Find Anything on Amazon
When was the last time you tried to search for something on Amazon? If you know exactly what you are looking for, it is really easy. But what if you don't know what brand you want? As an example, you wanted to buy a new chef knife. There are over 7,000 results for "chef knife". How do you determine which knife you are going to buy? These knives range in price from under $10 to over $1,000. You may wonder how a company can sell a quality $30 chef knife on Amazon now that you know how much it costs to sell on Amazon. One of the biggest culprits are Chinese manufacturers that sell directly to Amazon. They circumvent import taxes which helps reduce the price of the knife and they don't have to offer any customer service and/or warranties. So not only do you have a low quality, mass produced product, all of the profit from that sale goes right back to China. It doesn't stay here in the US. So even if you are purchasing on Amazon, make sure you are looking at who is selling this product and try to make sure the seller is an American company (if you care about this sort of thing). Simply click on the Sold by name circled in the image below. It will open a new window where it shows who the seller is.
What about all of the money Amazon is giving to small businesses? We don’t personally know where this $18 billion figure comes from, but we surely know that Amazon is not giving out handouts. Yes, Amazon loans small businesses money at a rate of 6.99% to 20.99% APR. And yes, Amazon is continuing to build their infrastructure to help small businesses sell more through amazon.com, in turn netting Amazon more profit. And yes, Amazon is spending money on educating small businesses and giving them more tools to, again, sell on amazon.com. Amazon has no interest at all in helping a small business sell more through their storefront or on eBay or, gasp, walmart.com. Amazon’s interest is helping small businesses list more products on amazon.com and selling more products on amazon.com. Period!
What about Amazon’s tax dodging? Their what?! Surely, Amazon pays millions upon millions (if not billions) of dollars to the US Treasury every year, right? Nope. According to The Motley Fool, in 2017 and 2018, Amazon did not pay any income tax. None. Nada. Zilch. Nothing. You may wonder how that may be and the article is fascinating and a little scary to read. Did you know, from 2008-2017 Walmart paid $64 billion in income tax? How much did Amazon pay during that same time span? Just $1.4 billion, even though Amazon is worth $1.4 trillion dollars and Walmart is worth $328 billion in 2020. Amazon is worth over one TRILLION more than Walmart. (We capitalized trillion to make sure you saw that it is trillion, with a “T”.)
What about Amazon’s work environment? Did you know that there is an actual alliance against Amazon’s work conditions, tax deals, public resources, and more? Athena is a coalition of local and national organizations representing working people, small businesses, people of color, immigrants, policy experts and more. You may think this is some bohemian hippie group, but spend a few minutes on Google looking up articles for yourself.
We live in a fascinating time of commerce, where virtually anything we want is simply a few clicks away. We wonder at what expense this comes. You can continue mindlessly clicking away at Prime deals and consuming as much as you can, or you can choose to be more conscientious of where your hard earned dollars are being spent. We know where we will be shopping.