Last updated on October 19th, 2020
“It’s a game changer” is an expression thrown around the consumer products and retail industries when discussing an unexpected yet crucial strategy that can mark a turning point for growing businesses.
The Fulfillment by Amazon (FBA) solution is one of these game changers. Amazon FBA is fast becoming a growing customer for both branded and private label businesses. Amazon FBA could be a great opportunity to market and sell your products to millions of consumers, without the uncertainty of chargebacks and discounts encountered when selling to traditional bricks-and-mortar and online retailers.
While FBA can provide that game changing advantage to many businesses, it may not work for all business and there are important areas consumer products companies should address to ensure business, financial and tax considerations are aligned with this solution. Addressing these areas before launching FBA is essential and continued assessment is also a must to optimally realize this fulfillment strategy’s best outcomes.
Right for your buyer and your business
No doubt you’ve determined the core preferences of your consumer. Knowing your buyer is paramount to everything you do as a business. Whether it’s design, quality, convenience, cost, or experience, you’ve pinpointed their needs and your product delivers. To that end, make sure the FBA solution also aligns with your customers’ preferences and buying behaviors. Under the fulfilment solution, the right price, online product engagement, transaction and delivery must complement your overall intended brand experience.
Financial Considerations: Does it Add Up?
Another consideration before FBA launch includes a comprehensive assessment of your back office, controls and financial reporting. Managing a fulfillment system, even if it’s provided externally, requires a diligent financial reporting effort to ensure accurate accounting and appropriate revenue recognition. Inventory management is a prime example of where many companies fail to maintain control. In many instances, the unsold inventory shipped to Amazon’s FBA distribution hub is legally yours until it is sold to the consumer; therefore it is imperative that you keep track of that inventory. A holistic approach, keeping in mind ongoing costs, fees, sales revenue, inventory management and marketing costs is essential.
What’s Next on Nexus (tax considerations)?
Nexus has been an ongoing topic of discussion in the world of e-commerce and remote sellers for the last decade. It is especially important for businesses leveraging FBA, because under this and similar fulfillment solutions, products are stored, purchased and shipped in and out of multiple states, resulting in a sales tax nexus determination challenge.
In 1992, the U.S. Supreme Court ruled in Quill Corporation v North Dakota that an out-of-state seller cannot be required to collect and remit sales tax on remote sales made to an in-state purchaser unless the seller has established a physical presence in the purchaser’s state. That continues to be the standard for evaluating sales tax nexus. However, In early 2018, the Court granted certiorari in South Dakota v Wayfair, Inc., et.gl. This case challenges the long-standing physical presence standard, and should the court decide to overturn its prior ruling, the decision could have monumental implications for sales and use tax nexus. Oral arguments on the case occurred on April 17, 2018, with a decision expected by the end of July.
While it’s impossible to predict the outcome of this pending ruling, understanding your current nexus footprint is one way to stay ahead of the debate and be proactive, especially concerning your FBA activities.