Amazon is raising the stakes for apparel sold on its site. The company said this month that it will begin taking a higher commission fee from third-party apparel sellers in April, according to CPC Strategy, an e-commerce strategy consulting agency.
By raising the bar for entry to its apparel marketplace, it’s aiming to increase shopper confidence and improve the quality of clothes sold on its site, Amazon sellers and strategy consultants told BuzzFeed News. The fee hike suggests that Amazon wants to expand its apparel sales in the US.
Amazon’s marketplace sellers in its clothing and accessories category will see their sales commission fee increase from 15% to 17%, and for the shoes, handbags, and sunglasses category, sellers will see a hike from 15% to 18% on items priced above $75. But items under $75 will still be charged the same 15% rate.
Amazon Marketplace jewelry sellers, however, will pay less commission on sales over $250. For a year beginning on Feb. 22, their 20% commission rate will drop to 5%.
Amazon declined to elaborate on its decision to BuzzFeed News. But Pat Petriello, with CPC Strategy, which first reported the increase, told BuzzFeed News, “typically Amazon will make changes like these in the same way a government will implement a tax or tax credit in order to encourage or discourage a type of behavior,” he said.
For sellers like Jason Baer, whose store PajamaGram has sold on Amazon for over 10 years, the commission shows Amazon is setting higher costs to weed out mediocre sellers or to challenge them to refine their product lines and marketing.
“You almost have to pay to play in the Amazon space,” he told BuzzFeed News. “It’s not about the cheapest price point for apparel, like other commodity products. It’s more price elastic. People want to browse and have confidence in [a] brand, and they don’t want to be scammed.”
Amazon is raising its apparel seller commissions as it plays the long game to expand in the apparel and fashion industry. It acquired Shopbop, a women’s luxury fashion retailer, in 2006, and it’s more recently been rolling out its own private apparel labels and courting recognizable brands, like Nike, by offering attractive incentives, like counterfeit protection, when they sell on Amazon.
Amazon's combined 2017 apparel and shoes sales exceeded $8 billion from first-party and third-party sellers, according to e-commerce data analytics company One Click Retail. By 2021, Cowen and Company equity analysts expect Amazon to be the top apparel seller in the US, bringing in an estimated $62 billion in annual apparel sales, with TJ Maxx in second place with $26 billion in sales, and Macy's in third with an estimated $23 billion in sales.
“They’re focused on clothing more so than any other category,” Juozas Kaziukėnas, CEO and founder of Marketplace Pulse, which analyzes e-commerce marketplace data, told BuzzFeed News. “They’re not building in sports, for example. So this change in the fee is likely related to this.”
The fee hasn’t yet been rolled out, but already third-party apparel sellers on Amazon are saying they may need to raise their prices. Western apparel seller Jerry Kavesh told BuzzFeed News that Amazon’s commission fee on clothing and accessories has not changed since he started selling on the site 14 years ago.
“It’s a big number,” he said about the increased commission. “It works out to be a large hit. You have to figure out how to offset that. We run really lean, so we’re going to have to increase prices.”
Apparel is a low-margin business for sellers, said Kavesh. Customers are more likely to return or exchange clothing and accessories, which cuts into profits.
Kavesh said the commission fee is a business trade off with Amazon. Essentially, he said, the commission on every sale is money well spent because the tech giant provides traffic, customer service, and other services to third-party sellers.
Baer, the owner of PajamaGram, said the fee hike won’t drive him off the marketplace. He plans to adjust his advertising spending and narrow his product line instead of increasing prices.
Both Baer and Kavesh said that, to be successful on the marketplace, a business has to be adaptive to Amazon’s changing rules.
“Everything [Amazon’s] doing is ruthlessly obsessive over their customers,” said Petriello. “Amazon doesn’t want to be the place where everybody comes to liquidate last season’s inventory. Customers will come and say, ‘I’m only finding bad products’ and stop shopping there because its a bad experience.”
Amazon’s third-party sellers, which make up 51% of its marketplace sales, are a critical part of its business. Its revenue from third-party sellers grew over the last quarter by 38%, which is substantially higher than its own retail sales growth rate of 17%, according to the company’s earnings released Thursday.