Amazon’s Fulfillment Service Is a Winner With Third-Party Merchants

NEW YORK (TheStreet) -- One of the things Amazon (AMZN) has down pat is fulfillment. It has figured out that this is one of the most important parts of an e-commerce business and has invested energy and money into bettering the way packages are delivered.

Amazon expanded its fulfillment capabilities to third-party sellers in 2006 through Fulfillment by Amazon, or FBA, which takes care of the logistics for small and medium-sized businesses. Nine years later, the initiative is going strong and has become one of the centerpieces of Amazon's business.

"As you'll notice in our most recent letter to shareholders from Jeff Bezos, Fulfillment by Amazon is the glue that links Marketplace and Prime," Mark Mitchke, vice president of Fulfillment by Amazon, said in an interview. "In short, our strategy with FBA is to continue to help sellers grow their business and continue to increase Prime-eligible selection for customers."

In May, third-party sales through FBA accounted for 35.4% of Amazon's general merchandise volume, according to ChannelAdvisor, an e-commerce service provider. That's up from 29.2% in May of 2014, for year-over-year growth of 21.1%. In 2014, the number of active sellers using the service grew by more than 65% from the year before, according to Amazon. The company doesn't disclose how much revenue comes from FBA.

"Sellers are generally happy with FBA when we talk to them," said ChannelAdvisor Executive Chairman Scot Wingo. With FBA, sellers get to hand over the entire logistics process to Amazon, which could be a headache for a small business to deal with. Plus, they can process non-Amazon sales through FBA as well, meaning that if they sell a product on another site, Amazon will still ship it.

"FBA is a very reasonably priced storage option," said Rachel Valosik, director of e-commerce at Griffin Technology, who is a happy FBA seller. "Griffin decided to use FBA because we know that Amazon shoppers prefer to buy when a product is Amazon-fulfilled. They like the fast shipping, and they like knowing they will be dealing with Amazon customer service should anything go wrong."

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