Amazon Has Too Many Warehouses. Now Sellers Are Paying More

In Suzhou, China, online toy shop owner Cameron Walker relies on Amazon to ship nearly a million packages for his business every year. The 42-year-old’s toy business, which designs and manufactures toys and craft materials in China and then sells into English-speaking markets including the UK, US, and Canada, has been running on Amazon’s third-party fulfillment service, Fulfilled by Amazon , since 2016.

Walker is almost wholly reliant on Amazon’s warehouses and shipping capabilities, leaving him to handle product design, manufacturing, and marketing. He hasn’t considered any alternatives or competitors. “That was the plan from the beginning,” he says, “because it’s the easiest.” “With all the warehousing Amazon’s got, it makes it easier for them to do fulfillment, because they’ve already got products everywhere,” says Ben Graham, marketing operations manager at a nutritional supplements company called Toniiq. “They’re already running those lorries around and about, so it’s simple for them to say, ‘We’ll just ship it. It’s fine.

The alternative is for sellers to build their own or rent space in independent warehouses—challenging enough at any point, never mind at a time when the market is squeezed. The warehouse vacancy rate in the UK is 2.8 percent—the lowest it’s ever been, according to Kevin Mofid, head of industrial and logistics research across Europe, the Middle East, and Africa for the real estate firm Savills, and a specialist in warehouses. In the US, the vacancy rate is 4.

In a low-margin sector, the demise of sellers during the pandemic has impacted Amazon too. Amazon overcommitted to warehouse space during the pandemic, expecting continued strong growth for its online retail platform, which didn’t materialize. Now it’s left paying for empty shelves. In 2019, shipping and fulfillment costs were responsible for 28 percent of Amazon’s operating expenses. Now they’re 35 percent.

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