What SMEs should know about Pan European Fulfilment by Amazon (FBA)

What SMEs should know about Pan European Fulfilment by Amazon (FBA)

Amazon has, in recent years, become a juggernaut in the eCommerce industry. The speed and reach of its logistics network has seen both large and small businesses flock to the platform, particularly for benefits such as Amazon Prime.

The rise of Amazon Prime

The incentive of speedy delivery has led to 85% of Prime members visiting the site at least once a week, with about half of those members making a purchase during the same week. This statistic becomes more impressive still when considering that only 13% of non-Prime members will make an Amazon purchase within the same window.

Speed and efficiency are clearly key to the success of any business looking to sell and deliver products, and this is especially true when international markets are concerned. With speed driving so many customers towards services like Amazon Prime, finding an efficient way to deliver goods around Europe is vital.

This is why so many UK businesses are opting for Pan European Fulfilment by Amazon (FBA), a method which allows businesses to distribute and deliver their stock across Europe while allowing their customers to take advantage of one-day delivery. This puts them on equal footing with local businesses and makes them a far more desirable option for international customers than shipping products without using FBA.

Where are Pan European FBA warehouses located?

Pan European FBA warehouses are located in seven different European nations: Spain, France, Germany, Italy, Poland, the Czech Republic and the UK.

How does the Pan European FBA process work?

FBA can be an extremely attractive method for small business for many reasons. But how does it actually work?

  1. If you wish to sell using Amazon, you must create an Amazon Merchant Account, after which the fulfilment feature can be added.
  2. If selling to Europe, EU VAT regulations must be followed, and businesses must be VAT registered in every European country where goods will be stored.
  3. You must package the items you wish to sell in accordance with Amazon’s guidelines on how to do so, and send them to your chosen fulfilment centre. The packing method will differ depending on the type of items you will be sending.
  4. Once Amazon has received your items and inventory, they will store them in their fulfilment warehouses until they are purchased by a customer.
  5. After packing the item, Amazon will ship it using the customer’s chosen delivery method, and will provide you with all the tracking information.
  6. Once the item has been delivered, Amazon will be responsible for customer queries regarding the item, as well as returns.

Pros

Benefiting from the Amazon brand

Overwhelmingly, 80% of people stated that they would trust Amazon shipping over shipping methods from third-party sellers. This could be especially useful to small businesses looking without a trusted brand who can benefit from Amazon’s impressive reputation. Even businesses not interested in selling products directly through Amazon’s website are eligible for the fulfilment scheme, which gives them the flexibility and freedom of choice to sell from their own domains.

Shipping products throughout Europe

A reported 56% of customers value free shipping more highly than any other factor when purchasing a product. When using FBA, your item may be eligible for free shipping, which will automatically make your item more attractive to buyers, especially those who may choose to filter search results based on shipping costs.

By attaching your product to the Amazon name and logo, customers are instantly aware of their shipping options, and will feel secure in knowing they can receive their items as quickly and as cheaply as possible.

Increasing efficiency for your SME

Particularly for small business owners, the day-to-day running of a company is a challenging task already and can feel overwhelming at times. By allowing Amazon to handle packing, shipping, tracking and returns, you are able to spend more time working on your products and your business, ensuring it is the best it can be.

This is especially true when selling and sending products to multiple countries with a singular fulfilment method, as managing these different channels can become very time consuming. Using an efficient method like FDA will provide that your services remain consistent, which in turn will benefit your business.

Cons

Cost of storing a product with FBA

Depending on the types of items you wish to sell, the time of year you wish to sell them and how big your items are, navigating the costs of FBA may be challenging, or even financially unviable for your business.

Because Amazon charges fees based on size, selling predominantly large items may not work with the FBA model. This is also true for businesses selling predominantly during the holiday season, as storage costs increase between October and December. Additional costs will also be incurred for items that are stored for more than six months, which places a large amount of pressure on businesses selling long-life products.

Although these costs provide you with Amazon’s efficient service, smaller businesses may not be able to afford these them. Luckily, Amazon has an FBA revenue calculator available to make the decision process easier.

Your VAT and tax obligations within Europe

All business hoping to use FBA to store and sell in the European market must be VAT registered in every single country they wish to store their goods. The penalties for not adhering to these regulations can vary, and range from the suspension of your Amazon account to legal action. It is also important to remember that when storing your goods in Amazon’s FBA international warehouses, distance selling thresholds do not apply.

Registering for VAT can be an administrative burden for businesses, especially considering this process will need to be repeated for each of the seven associated countries. With these tax restrictions in mind – and considering the savings that can be made by using this method over other shipping methods – deciding whether FBA is cost effective enough should be calculated on a case-by-case basis. Luckily, there are external services available that can lift this burden from sellers, and make the VAT process smoother as a result.

Ensuring FBA maintains the quality of your product 

Because the goal of both the seller and Amazon is to deliver the product to the customer as quickly as possible, FBA have developed a delivery system called commingling.

This essentially means the seller will send a stickerless item, and FBA will use the item’s existing barcode in order to sort it accordingly. When this item is sold, FBA will identify the item by type, and will send an identical item from whichever fulfilment warehouse can deliver the product most quickly.

Although this significantly increases efficiency – and is therefore a popular choice for many FBA sellers – this can and has caused problems with quality control. Amazon’s guidelines state that all items being delivered using this method be of an identical type and condition; however, this is not always the case once items are received by the customer.

In a marketplace in which 90% of customers say they would not consider purchasing a product with a review of less than 3 stars, quality and reputation can make or break a business, especially if they are a small business. In the most extreme cases, sellers have had to close shops or even face legal action due to items arriving damaged or of substandard quality thanks to the commingling method.

Luckily, even though this delivery option is the default for FBA users, you can manually opt out of this method should you choose to do so. However, you should consider the impact that individually labelling and sending items may have on your delivery speed.

Should I choose FBA?

FBA is a fantastic resource for all sorts of businesses to expand into international markets easily and efficiently. The potential opportunities for small businesses in particular are numerous, especially when considering the sterling reputation and award-winning customer service that Amazon provides for both sellers and customers.

It is important, however, to be wary of the financial risks that are present when opting for this method of delivery – particularly with the strict VAT regulations that are currently in place. For small businesses, choosing FBA is a decision that requires careful consideration, and you must decide whether the advantages of reaching more customers more efficiently under these financial constraints is the right step for your business.

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