In the midst of the Coronavirus pandemic and a near shutdown of most retail operations, Amazon has reported seeing significant increases in demand. As doorstep delivery becomes more of a necessity than a luxury, Amazon is rising to the challenge.
All things Amazon will intensify in the months to come due to the increased volume on the platform. Part of my job is to clarify what is going on to our brand partners so we can sensibly plan for the future. I’m not a fortune teller, but I’ve pulled together a few predictions to consider for the months ahead.
Amazon Sales Will Increase
As physical stores close and people opt out of non-essential contact with others, more people will shop online than ever before. And nearly 40% of all ecommerce sales happen on Amazon. Sure, many people are in uncertain times financially so discretionary spending will also decrease. But when Amazon announced they are hiring 100,000 workers a few days ago, it legitimizes their expectation that overall demand is increasing despite national economic contraction. While discretionary spending will decrease across all retail channels, the recent events tell me that Amazon is expecting even discretionary spending categories to see significant increases in sales on their platform.
Spike in Unauthorized Sellers & MAP Violations
Retailers with physical stores are making difficult decisions right now to manage cash flow constraints. Should they lay off employees, ask for extended payment terms from brands, pay late, take a loan, file bankruptcy? These retailers will look for any means possible to sell through their current stock and live to fight another day. Can you blame them? And since anyone with inventory can list on Amazon, they will flock there. The increase in reseller competition results in an increased incentive for sellers to degrade price to win sales, creating a price-war. Brands can get ahead of this by careful communication with all retailers on the expectations or conciliations they are willing to make to support their retailers in this difficult time.
Delivery Times Will Bend But Not Break
With increases in demand and a swarm of new employees, Amazon’s logistics infrastructure will meet its greatest test yet. Before this is over, I predict we will see zones with 1-day shipping be extended to 2-day shipping and 2-day shipping zones extended to 3 or 4-day shipping. Because of its volume, Amazon will still continue to receive priority treatment from its partnered delivery carriers like USPS, so the bottleneck will mostly be the Amazon fulfillment centers. Despite longer than usual delivery times, Amazon should still remain the gold standard in delivery speed and continue to hold preference in shoppers’ minds.
Private Label Competition Decreases Temporarily
A recent report by Fortune found that 94% of Fortune 1000 companies are seeing supply chain disruptions from the coronavirus. As manufacturing begins recovering in China, guess who will have their orders filled first? The companies that do the most volume. Private label sellers will be sidelined by their existing suppliers, forcing them to find a new supplier or wait. Either scenario leads to stock outs. Since Amazon’s organic ranking algorithm punishes products that are out of stock for a few days, getting back in stock will not immediately resolve the private labeler’s woes. They will have to regain their organic ranking which takes time and a sufficient advertising budget. Stock outs negatively impact organic ranking on Amazon for private label and legacy brands the same, but private labelers are less likely to have the resources to fund ads and climb to page-one search results after losing that spot.
Staying In-Stock Will Be More Difficult Than Ever
Most Amazon retailers rely on Amazon’s fulfillment centers to warehouse and fulfill orders. In a shocking announcement, Amazon suspended shipments into its fulfillment centers of nonessential products for 3 weeks to prioritize products that Americans need most right now. The suspension is supposed to lift on April 5th, but now that we’ve seen Amazon suspend FBA shipments to create operational margin, it is possible that they could delay the April 5th date or enforce a similar suspension in the months to come. Sellers without alternative warehousing and fulfillment options will not be able to offer product for sale. Warehouse managers of non-Amazon facilities are running skeleton crews and increasing precautions that lengthen normal delivery speeds. When you combine expected overall increases in demand on Amazon and unexpected operational delays, demand planning becomes extremely difficult for retailers. Brands can mitigate this by working with Amazon retailers who are willing to take an aggressive stock position and can fulfill orders through their own warehouse if FBA warehouses are not an option.
The Adoption of Ecommerce Will Accelerate Even After The Pandemic Has Passed
Behavior change is slow, unless there is an emergency. More people will shop online than ever before during this pandemic. With every passing day, retailers with physical stores are forced to close their doors for good. The longer this pandemic continues, the more online shopping will become the new normal. And once this is over, a new behavior pattern of online shopping will have been established while fewer physical stores will be in operation. All of these factors should lead to an acceleration of ecommerce adoption even after the pandemic has passed.
An Amazon strategy with solid fundamentals in retailing and marketing is more important than ever before. Brands who prioritize their Amazon strategy during this time will be in better position to weather the storm.
We’re rooting for you.
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