Report: Amazon offers discounted warehouse space to fuel 1-day shipping

Dive Brief:

Amazon will offer discounts up to 75% on warehouse storage fees if sellers store more of their goods with the company, CNET reported.
Eligible sellers include those that have sold 60 units or more of a product each month or sellers that have products specifically selected by Amazon.
The sellers must maintain four to eight weeks of inventory in Amazon warehouses to qualify for the discounted storage fees, Adweek reported. The promotion runs from June 1 to Jan. 31, 2020.

Dive Insight:

Soon after Amazon announced its plans to transition to 1-day shipping, Amazon employees told Supply Chain Dive fulfillment center operations wouldn't have to change to handle the faster delivery pace. The news of Amazon incentivizing sellers to store more inventory, however, points to changes in fulfillment to make 1-day delivery a reality.

Just-in-time inventory has been gold standard for many retailers as they seek to optimize margins and lower costs related to storage space. As 1-day shipping and fast fulfillment become the new normal, retailers are likely to drop just-in-time models in favor of stockpiling to assure e-commerce orders can be fulfilled and shipped as quickly as possible.

Products also need to stay close to consumers to fulfill and ship quickly without layering on transportation costs. Brick-and-mortar retailers like Target are using their stores to keep products close to consumers and costs down.

The lack of (many) physical stores puts Amazon somewhat at a disadvantage compared to Target and Walmart, although the e-tailer boasts a sprawling warehouse network.

The deep discounts on warehouse space may persuade many sellers to take Amazon up on its offer, and Amazon will likely enjoy the benefit of greater SKU variety available for speedy fulfillment and shipping. Last year, third-party sellers made up 58% of Amazon's total sales.

Despite these sellers proving particularly valuable to Amazon, the e-tailer is reportedly gearing up for a big purge of its small sellers, according to Bloomberg. Instead, Amazon will focus on wholesale purchasing. It's unclear if the same sellers being offered discounts for storage space are also on Amazon's chopping block.