A few short decades ago, Amazon was only a retailer of books. Through explosive growth and several strategic acquisitions, it has become the largest ecommerce retailer in the United States. Other retailers know the extensive reach Amazon has achieved, and many companies team with the online Goliath by selling on Amazon’s site to collect their own piece of greatness. In this post, we review the nuances of being an enterprise Amazon seller and using the Fulfillment by Amazon (FBA) service — most importantly, how to protect your company.
Retailers Using Amazon
From resellers to private label sellers to national brands, the Amazon channel has been a popular route to many businesses. It’s effortless to sign up for an Amazon seller account, post products, and start selling. And nearly anyone can sell on the site. However, Amazon has various requirements and obligations for individuals and companies that choose to sell on the platform.
For example, if Amazon already offers that particular brand, another business can’t also sell it. But you’ll likely see multiple sellers offering the same brand or product, making competition steep. Amazon also offers its Fulfillment by Amazon service to all its third-party sellers — but it’s not mandatory to use it.
Some of Amazon’s retail competitors include Walmart and Target. However, while several companies sell their products on Amazon, such as Chico and Aldo, eBay still vies for the attention of other sellers. When retailers navigate Amazon’s rules and regulations savvily, they can churn plenty of profit.
Benefits of FBA
Many retailers buy and ship their products to Amazon warehouses. From there, customers can order those products and depend on Amazon to ship them. This service is what’s known as Fulfillment by Amazon or FBA.
There are many benefits of FBA, including Amazon handling customer service issues. Plus, because Amazon is so massive, it contracts with many shipping carriers and enjoys generous discounts. Retailers using the FBA service reap the rewards of these discounts, as well. And Amazon ships all over the world — very quickly.
One paramount issue many retailers face is not having enough space to store their inventory safely. With Amazon’s FBA service, storage space isn’t an issue. Lastly, Amazon doesn’t limit the number of products you store in its warehouses, meaning you can better maintain the best order quality.
Risks for Amazon Sellers
Although creating a seller profile isn’t challenging, as mentioned, Amazon has stipulations with which sellers must comply. For example, Amazon holds sellers at a high customer service standard, requiring them to answer customers within 24 hours regardless of the request. Additionally, sellers must secure their own distribution; Amazon doesn’t do this for you.
A significant risk for Amazon sellers is that payouts are slow, with sellers only receiving distributions every two weeks (14 days). Plus, if your account is suspended for any reason — another paramount risk — Amazon can hold your distribution for up to 90 days. Many sellers face dizzying price wars, as well, forcing them to use sophisticated repricing software to stay in the game.
Unsurprisingly, fees are also a major concern for Amazon sellers. Closing fees, referral fees, long-term storage fees, prep service fees, and more add to the list of Amazon fees that sellers must face. Not only can these numerous fees eat away at your profits, but sellers often find it challenging to keep track of them.
If Amazon imposes selling restrictions, your inventory might suddenly become worthless. Or Amazon might suspend your account, as mentioned above. Hackers and cybercriminals can wreak havoc on a seller’s account, causing them to “clean up” the mess.
As a result, some brands, such as Ikea, Nike, and Birkenstock, have cut ties with Amazon; however, shoppers can still purchase their products via third-party sellers on Amazon. In short, selling on Amazon can be lucrative for many sellers, but it sometimes takes some jumping through hoops.
Amazon’s Insurance Requirements
There are two primary kinds of sellers on Amazon: individual sellers and Pro Merchants. Naturally, individual sellers have fewer insurance requirements than Pro Merchants. Still, many sellers think that Amazon takes on all the responsibility, but the platform requires sellers to have product liability insurance to be a Pro Merchant.
With an individual seller account, sellers aren’t required to have insurance, although it’s highly recommended. As a Pro Merchant, though, Amazon requires sellers to show proof of general liability, umbrella, and/or excess liability insurance. According to the Amazon Services Business Solutions Agreement, policy limits must be at least:
$1,000,000 per occurrence, $1,000,000 in the aggregate for products and completed operations, and $1,000,000 in the general aggregate. Such insurance must include products liability, products/completed operations, bodily injury, personal injury, broad form property damage, and broad form contractual coverage.
UPDATE: October 2021
Amazon is currently taking a more aggressive approach with clients selling on their platform. They are becoming more strict about requiring occurrence vs. claims-made coverage. If you’re unsure of the difference, read our blog post about occurrence vs. claims-made coverage.
We’ve seen Amazon’s automated clearance system kicking back COIs. They’re re-confirming non-acceptance with human interaction, threatening to “remove our seller privileges” if the seller’s insurance isn’t in compliance.
Amazon has limited insurance requirements for sellers; however, here are several policy sellers should consider to ensure their business’s longevity:
General liability offers broad protection against some of the most fundamental risks companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises.
Companies offering tangible products or services risk third-party lawsuits claiming bodily injury or property damage. Consider McDonald’s notorious “Hot Coffee” case in the 1990s, for example. No matter if the claims are grounded or not, this policy covers defense fees and settlements.
Whether it’s a devastating fire, natural disaster, or burglary, property insurance responds. This policy reimburses companies for direct property losses, supporting recovery and momentum.
Delivery drivers and couriers often use their vehicles to drop products off to customers. This coverage protects against damages sustained by employees when they use personal vehicles for business purposes.
Products, materials, and equipment in transit are at risk of being damaged or facing some type of loss. This policy covers movable commercial property and high-value items that are typically excluded by traditional property insurance. Companies can purchase inland marine insurance as an add-on or a separate policy.
Logistic companies move goods by the ocean, air, and land, facing the risk of damaged goods, theft, and other liabilities. This policy protects from business property loss or damage when it’s in transit or stored offsite.
Understanding the details of what coverage your company needs can be a confusing process. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you.
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