2021-05-19

Rising Prices for Raw Materials and Freight: What it Means for The Amazon Seller and Shopper

Rising Prices for Raw Materials and Freight: What it Means for The Amazon Seller and Shopper

 

Behind the Scenes there are several scary trends that will impact both the Amazon Seller Central brand owner and the Customer. It’s May 2021, 1/3 of America is now Vaccinated, we are arguable through the worst of the coronavirus pandemic and we have another catastrophe on the horizon. I will give you a hint, It’s not a shortage of toilet paper.

Over the last few months there is a quiet panic brewing among many sellers, and it’s rooted around supply chain shortages and rapidly increasing costs. These cost increases are seemingly coming to a head as we are in a gas Crisis, a global shipping crisis, and a massive shortage of raw materials. All of these things lead to one thing, heavy inflation. If you are importing goods from China, you are in potentially the worst boat of them all (no pun intended). Costs for shipping containers has doubled and tripled over the last year, tariffs are still in play, and the cost of raw materials (increases) in China is considerably more aggressive than it is elsewhere. I would imagine at some point soon; the numbers will not make sense for many Chinese sellers and importers of Chinese products for Amazon USA.

What does all of this mean?

One thing, prices are going to sky rocket 10-30% for most products on Amazon. Todays every day price, will become tomorrows “sale price” so if you are thinking about what to buy your loved one for Christmas on a budget, I would consider shopping now. We may also see more shortages coming our way, and this is for a few reasons.

First – We are hearing from many of our clients that production is cut short from covid guidelines. Production capacity is constrained still.

Second – Americans are afraid of the toilet paper crisis of 2020, so they are stocking up on household products to avoid outages. Private labels have the same fears so they are hoarding raw goods. Especially when your manufacturer tells you there is a 6-month lead time, you tend to over order. Panic buying.

Third – There is a heavy labor shortage. Especially with American manufacturers having to compete with the federal government on labor rates.

Fourth – Consumption is up. More people are at home consuming during the day. This is a combination of work from home increases, and stay at home parenting. Many American households still have their kid(s) at home, and one of the parents may be out of work as a result.

These four things combined create a whirlwind that has demand well above supply across the board, as a result prices are skyrocketing. Everything costs more to make, and its 2-4x as slow to make it.

How to Prepare for Increased Selling Prices

Your very first step should be to call you manufacturer and ask them what they are seeing. Ask about current and future lead times, along with any foreseeable production or shipping delays. Ask they how long they can guarantee existing pricing. Do not avoid this conversation because you don’t want to know the inevitable answers. The best business owner, is the prepared business owner. I guarantee some of your competitive are avoiding this convo and if nothing else, this may give you an edge (because they may run out of inventory at some point).

If you know there will be rising costs and are an FBA or FBM Amazon Seller you need to begin preparing for these increased expenses now. If you are selling on other retailers outside of Amazon you need to consider you have algorithms to contend with also as it relates to price alerts / high price restrictions. Raising your selling prices is not as simple as it was 5 years ago. First step would be to alert your other retail partners to the future MSRP / MAP / Costing. It is always easier to manage the pricing on Amazon last.

Your next step is to begin testing small increases to pricing. Less than 5% max at a time, in 7–14-day increments. The reason for the small moves is because they are less likely to be blocked (offers) with small movements in any direction due to price alerts. The price tool attribution cycle is generally 7-14 days. You need the prices to move up now, because otherwise you will not have cash to pay for increases on new inventory, more so if you are an importer (and most are). The nice thing about these new prices and this strategy for increasing your pricing is that it is subtle and it is slow, in 1-2 months you can likely change your pricing up to 20% if done bi-weekly.

At this point you may be fairly well prepared. It is important to begin collecting a higher price now because otherwise you will not have the cash flow to re-order from your manufacturer at yesterday’s dollars. I would also expect sometime in the next 6 months to a year Amazon may reevaluate their fees, it all means margin erosion for the seller. Unless you are in a very high margin category, I would expect you will feel the sting of rising prices at some point soon. As always, it is best to be prepared early.

In your conversation with your manufacturer make sure you understand your forecasting and plan ahead of time. Many suppliers we have talked with expect this issue to continue without any deflationary activity through 2021 and into early 2022. It Is hard to get real numbers further than 6 months out at this point. Make sure you have enough inventory on order to navigate through the longer than normal lead times, without it being excessive.

Good luck and happy selling!

By Adam E. Wilkens