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Amazon to Hike Merchant Fees in 2020 to Cover Rising Expenses

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Amazon’s AMZN robust delivery services, which not only provide customers an enhanced shopping experience but also benefits sellers with increased reach and sales growth, are testament to its focus on e-commerce market.

Notably, the company has a huge third-party seller base and maintains a healthy relationship with them on the back of these services.  In 2019, the company has invested more than $15 billion in tools, infrastructure and Fulfillment by Amazon (FBA) program to help sellers.

However, the company has reportedly decided to hike merchant fees for warehousing and shipping goods by 3% on average in 2020. The hike will help in managing rising infrastructure costs incurred in a bid to provide fast delivery services.

Growing Prime Delivery Initiatives

Amazon introduced Prime Free One Day service this year, which remains a major positive. In fact, it has driven customer momentum significantly.

However, rising transportation and fulfillment center costs related to this service have been weighing on the company’s margins since past few quarters. These costs are expected to increase further.

Notably, this is one of the reasons behind investor skepticism regarding the stock.

Coming to the price performance, shares of Amazon have returned 19.4% on a year-to-date basis, underperforming the industry’s rally of 26.4%.

We believe raising merchant fees is likely to help Amazon in covering these costs.

Further, the company is of the opinion that 3% hike is a moderate one. Moreover, the hike is still below the industry standard, which highlights commitment toward sellers.

Additionally, Amazon has stated that referral fees for merchants will go down in some instances.



Amazon Prime: A Key Catalyst

We note that Prime members pay $119 per year for fast and free delivery.

The latest decision by Amazon reflects continued focus toward delivering goods on time despite rising transportation costs.

Apart from this move, the company has temporarily suspended the usage of FedEx’s FDX ground delivery network for its Prime shipments, in order to prevent delays in the delivery of the packages. Notably, the company is of the opinion that the network is slow and needs to speed up.

All these initiatives are likely to drive Prime membership further.

Zacks Rank & Stocks to Consider

Currently, Amazon carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the retail-wholesale sector that can be considered are Zumiez ZUMZ and Fiverr International FVRR. While Zumiez sports a Zacks Rank #1 (Strong Buy), Fiverr carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Zumiez and Fiverr International is pegged at 12% and 44.18%, respectively.

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Zumiez Inc. (ZUMZ) : Free Stock Analysis Report

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