Amazon and sellers negotiate delays, demand shifts during coronavirus
Men work at a distribution station in the 855,000 square foot Amazon Distribution Center on Staten Island, New York.
Johannes Eisele | AFP | Getty Images
The coronavirus pandemic has tested the patience of Amazon buyers because many of the benefits they expect from the website, such as free two-day delivery and an endless library of affordable products, are not more guaranteed.
It’s easy for consumers to point the finger at Amazon for out-of-stock notices, long delivery dates, and higher prices.
But Amazon and the sellers who supply the products on its site are not entirely responsible.
Amazon has been fighting coronavirus issues on several fronts for several months. He was struck by a surge in online orders in March as buyers panicked buying essential items on his site. At the same time, Amazon was controlling a general pricing problem and its grocery delivery services were soaring under the weight of online orders.
In mid-March, Amazon made the decision to prioritize shipments of household goods and medical supplies to its warehouses, while severely limiting who could sell products such as face masks and disinfectants, which left many sellers in trouble.
Last month, Amazon started allowing merchants to ship certain nonessential items, but it still limits the quantity of items in new shipments. Quantity restrictions indicate that the logistics nightmare may not be over for Amazon or third-party sellers, who say the restrictions are preventing their businesses from recovering.
Amazon and third-party sellers who account for more than half of its sales agree: there were few ways to prepare for the crisis and the accompanying shortages and delays in supply.
“They didn’t have time to plan and that’s the really scary part,” said James Thomson, consultant consultant and former director of Amazon Services, the team that recruits third-party sellers to enter the market. Amazon.
“Amazon is great at predicting when data is predictable. Well, it was unpredictable.”
“No such preparation”
Amazon’s processing and delivery operations are used to accepting millions of packages a day, but coronavirus presents a unique set of challenges.
The company continues to face delivery delays due to bottlenecks in its logistics network. The shipping methods it would typically rely on have limited capacity, making it more difficult for Amazon to quickly transfer inventory from one distribution center to another. In addition to this, Amazon’s last mile delivery partners have struggled to manage the demand for the surge in online orders.
For each wrinkle in the shipping process, the time is set on the delivery date, frustrating buyers and traders accustomed to the traditional one or two day delivery promise from Amazon.
Amazon acknowledged on its last call to results that it was quickly overtaken by demand for essential items at the height of the crisis.
“Although we generally have experience in preparing for peaks in demand for known events such as the holiday season and the First Day, we generally spend months accelerating for these periods,” said CFO ‘Amazon Brian Olsavsky to investors during the call. “The COVID crisis did not allow any preparation of this type.”
In addition, in a memo to sellers in April, one of the top executives who oversees Amazon’s sprawling market, Dharmesh Mehta, admitted that the situation “is certainly not as usual.”
As she ran to track a spike in online orders, she also faced growing unrest among warehouse workers across the country. Workers who feared for their safety at work were absent for weeks or more than a month because they took advantage of unlimited unpaid leave (a policy that has since been deleted).
Inside the warehouses, the rules of social distancing meant that the workers were more distant than usual, which slowed down the parcel delivery process. The company has hired more than 175,000 warehouse workers and delivery drivers to better meet demand.
Given the scale of the issues involved and their variability, Amazon has been reluctant to provide any sort of prediction as to when delivery times will return to normal.
The pandemic has made it more difficult for Amazon to source more products from its warehouses when it needs them. If a buyer places an order for an out-of-stock item, Amazon can usually take steps to get that product quickly from another distribution center.
These levers were largely inaccessible during the pandemic, and its remaining options either take longer to deliver or are much more expensive, said Thomson. For example, Amazon may rely more on trucking amid higher air freight costs and limited capacity. Trucking is inherently slower than transporting packages across the country.
This is a problem that is particularly difficult to solve because Amazon “can hire a million new people, but it doesn’t matter if there is no air cargo,” said Thomson.
“One of the reasons why Fulfillment by Amazon is so good is that they have so many shipping methods,” said Thomson. “They figured out how to optimize all of these parts, but all of a sudden these parts don’t exist. Amazon has to optimize its network using higher expenses or longer modes of transportation.”
These types of efficiencies are crucial to reducing delivery delays, said Olsavsky during the call.
“The cost structure, the ability to get products, your shipping and delivery capacity, these are generally things that you can take for granted,” said Olsavsky. “And in this quarter, you can’t. That’s really where the uncertainty comes in.”
Sellers carry the weight
Third-party marketers told CNBC they thought the company had made the right decision by prioritizing essential items, but that it had also created headaches for their businesses.
Traders said the quantity restrictions mean they will not be able to ship all of the inventory they hoped to sell. Consequently, they will not be able to restock certain products, even those which are the best-selling articles on the site.
Meanwhile, demand for goods remains at levels similar to that of Black Friday.
“There is no doubt that the US response to this crisis has been to buy more things online,” said Chris Palmer, Amazon seller and CEO of SupplyKick, who advises sellers and brands. “Amazon’s trademark is the store of everything and all of a sudden, hundreds of millions of people want a very narrow selection of products, like masks and toilet paper.
“I don’t think Amazon was very well set up for this,” added Palmer.
A longtime Amazon seller said delivery days were the biggest challenge in navigating his business, which sells children’s toys. This seller asked for anonymity because he feared that Amazon would retaliate.
In March, some of their products had delivery times until May or June. The situation has improved, but it remains unpredictable, changing not only weekly but sometimes several times in a single day. In many cases, the items are intended to be dispatched within a few weeks, but suddenly, the delivery date changes to a few days from the date of the order. The seller thinks Amazon may be under promising and then deliver too much.
“I’ve never seen anything like it,” said the seller.
Tom Sesti, director of e-commerce for consumer goods company HoMedics, said the company was having trouble forecasting the company’s annual sales because it couldn’t send certain categories of products to Amazon. In addition, consumer buying habits continue to change dramatically, so HoMedics has stopped focusing on low-volume products, such as headphones and speakers, and has started to produce in-demand items like personal protective equipment.
“What is the world going to buy for the rest of the year, compared to what we thought they would buy? We don’t know,” said the seller. “So you choose the ones you think will be successful and the ones that are going to be pretty weak, you plan down, because you don’t want to have extra inventory and have money locked up.”
An Amazon spokesperson told CNBC in a statement that he appreciates the “patience of its business partners” as it prioritizes essential items in its warehouses. The spokesperson added that Amazon is limiting quantity so that it can continue to provide essential products to customers and protect warehouse workers.
Until Amazon allows sellers to deliver new products at normal levels, many of them will continue to struggle with their businesses, said Fahim Naim, a former Amazon executive and consulting firm CEO. in eShopportunity e-commerce.
The brands he oversees send thousands of units per shipment, making the cap of 50 units per order “practically useless” if they try to meet current demand and deliver items on time.
“It’s a bit like a window covering,” said Naim. “At a level of 10,000 feet, they improve directionally, but it’s a bit of a product level roller coaster.”