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Amazon FBA not as easy or hands-free as gurus claim

Inventory is often damaged inside Amazon's fulfillment centers.
Inventory is often damaged inside Amazon's fulfillment centers.
businessinsider.com

Selling on Amazon’s FBA program has been getting a lot of hype lately as an easy, hands-free way to make a lot of money online. Amazon FBA is a program where sellers can send items to Amazon warehouses in bulk, and Amazon ships the items to the final customer when they sell. The system works fine, but what many newer sellers don’t understand yet is the cocktail of things that can go wrong throughout the whole process. Below are the top 5 pitfalls of selling on Amazon – which some sellers don’t understand until they are knee-deep in the process.

1. Defective merchandise. According to Amazon’s A-Z Guarantee, a customer can receive free return shipping if the item he receives is defective. Buyers have learned to check the “defective” box when returning items so they won’t be charged. The item goes back into the seller’s inventory as defective, but the seller has no way of knowing if the item is actually defective or if the customer just said it was. The seller must then do a removal order, get the item back, and determine if the item is sellable. Many times the item really is defective or missing parts, and the seller just has to take the loss.

2. Lost inventory. Sometimes, things just go missing. Ironically, candy and gourmet food go missing around Christmas time. Sometimes entire boxes of inventory are lost. It is the seller's responsibility to keep an eye on inventory levels and to reconcile inventory. If items are missing, the seller must send a reconciliation to Amazon asking for a reimbursement.

3. Distributor damaged inventory. This happens when items in an inbound shipment to an Amazon warehouse are damaged, either by UPS, by Amazon personnel upon opening, or the items weren’t packed well by the seller and they were damaged in transit. This is inventory that can’t sell. Sometimes Amazon reimburses the seller, sometimes not.

4. Intellectual property rights violations. It is not uncommon for companies to decide they do not want their products sold on Amazon by third-party sellers. Dunkin Donuts, Gillette, and Oral B are examples. Any company can make this decision at any time, and if a seller has restricted merchandise in a warehouse, they must have it removed. It won’t be sellable on Amazon. Sellers should be careful with quantities. See the full list of Amazon Restricted and Prohibited Brands here. (Subject to change at any time.)

5. Cut-throat competition. Because of the hype about Amazon being such an easy way to earn money, many new sellers are entering the marketplace. Anyone can become an Amazon seller - there is no approval process. Many new sellers do not have any business experience and don’t understand how to price items or keep business records. They don't even know if they are making a profit. Others are happy to make razor-thin profits on items. This type of competitive environment can be frustrating for sellers who actually want to make money on Amazon.

If you are planning to enter the Amazon marketplace, make sure to do your homework and understand that this business takes daily attention. a large cash outlay for inventory, and nothing is guaranteed. New Amazon sellers make common mistakes that cost them money, and sometimes their account.