Amazon surprisingly lags competitors like Walmart and Target in e-commerce surge
Amazon sales should seemingly be soaring during the coronavirus crisis, amid panic buying and shelter-in-place orders, but web traffic measures show the e-commerce giant’s overall visits flat or growing slower than other major multi-line retailers in recent weeks. Survey data and experience from one seasoned Amazon consultant even indicate sales have fallen lately across most Amazon categories.
While the traffic and sales impacts may be temporary, they’re part of a host of factors in recent weeks that could lead to a shakeout in the number of third-party sellers on Amazon and the number of sellers leading brands will allow to sell their products. Conversely, some distressed direct-to-consumer brands are flocking to Amazon in search of business as traffic on their own sites dry up. That's driving up bids on Amazon keywords even in categories where business is down.
Data from SimilarWeb show desktop and mobile visits to Amazon flat for the period March 1-20, while Target, Walmart and Costco visits soared between 19 and 40 percent. Comscore data do show Amazon visits up 28 percent during the March 1-16 period vs. a year ago, but traffic was up 39 percent for Walmart and 76 percent for Target.
CivicScience tracking surveys of the U.S. population show “a decrease in spending on Amazon.com in nearly every category but entertainment,” according to a report by the firm. Even in grocery, where CivicScience respondents reported an increase in Amazon spending last week, that hike dissipated by early this week. The proportion of people saying they’d spent nothing on Amazon groceries in the past month rose around 5 percent in the past week.
That’s puzzling to say the least, amid a huge surge overall in online shopping. CivicScience finds the number of people who say they do none or almost none of their shopping online fell from 23 percent in early February to 15 percent early this week. In other words, a good chunk of the U.S. is using e-commerce for the first time.
Declines in many Amazon categories
Yet, both a large third-party seller and an Amazon consultant who works across multiple categories say they see sales declines in many, or most, of their business or client businesses. Much of the decline, they say, stems from Amazon’s shift last week to temporarily allow only essential items from brands and independent sellers to move through its warehouses, meaning longer shipping times for almost everything else and more orders either not placed or canceled.
Amazon declined to comment on traffic or sales as it’s in its quiet period for financial reports, approaching the close of the quarter. In an email statement, a spokeswoman said: “We understand the impact that COVID-19 has had on many of our selling partners, and appreciate their understanding as we temporarily prioritize high-priority products so we can more quickly receive, restock and ship these products to people who need them during this time, particularly the elderly and those who are most vulnerable to being out in public. We are working hard to help selling partners during this difficult time, including relaxing our policies around shipping-related performance metrics so their presence in our store is not impacted, and waving long-term storage fees in April for sellers using Fulfillment by Amazon.”
Like Amazon, many customers are emphasizing essentials over discretionary items amid economic uncertainty, possibly fueling declines in Amazon’s nonessential categories. CivicScience shows people who favor Walmart, Target and Costco are actually finding more products out of stock than those who favor Amazon, but interprets that as a sign of more people trying to shift online purchases to those other retailers.
Amazon is hiring 100,000 people as fast as it can for fulfillment centers to allow it to return to one or two-day delivery for more items and restore shipping for more of its marketplace sellers. But in the meantime, many third-party sellers are turning to third-party logistics firms to fulfill Amazon orders, says Kunal Chopra, CEO of Etailz, a Spokane, Washington-based third-party seller on Amazon and Walmart.
Often, that means third-party sellers can still get two-day turnarounds and qualify their items for “Prime” free shipping, he says. But that also means higher costs that either lead to higher prices or thinner margins.
Amazon’s priority on essentials is likely to hurt its own thin margins, too. People familiar with the retailer say it routinely loses money on packaged goods and has ramped up private-label offerings in recent years to mitigate, but not eliminate, those losses.
“We’re seeing an increased amount of traffic on listings that we have on Amazon,” says Chopra, who says his business is about 60 percent “essential” items. “That said, a lot of our listings are in a restricted category, and so if you look at the balance, those things flatten out.”
Delays hurt Amazon, sellers
One- or two-day delivery is a key sales driver, Chopra says, and delayed shipping means more time for people to cancel. Items such as dog toys or school supplies that were shipping next day on Prime until recently can now take more than 30 days. Even though Amazon collects payment at the time of sale, third-party players don’t get paid until the item ships, creating cash-flow problems that could put some third-party players out of business, he says.
An Amazon spokeswoman pointed to the retailer's Conditions of Use that says, "We generally do not charge your credit card until after your order has entered the shipping process, or, for digital products, until we make the digital product available to you."
Fred Killingsworth, CEO of Cincinnati-based Amazon sales consultancy Hinge, who works with brands across 40 categories, says that while grocery sales “have gone through the roof,” he’s seen sales in other categories decline as much as 25 to 40 percent in recent weeks, particularly in apparel and cosmetics. Chopra says consumer electronics sales have been hit hard.
The coronavirus crisis also is fueling a number of other key changes in Amazon selling and advertising that could have longer-lasting effects, Killingsworth says.
D-to-c brands seek rescue on Amazon
Direct-to-consumer sales have plummeted for many players in recent weeks, he says, citing a luxury beauty seller he advises, as people shop less for nonessential items. As a result, many d-to-c sellers are shifting their operations to Amazon, hunting for traffic they can’t get on their own sites, Killingsworth says. So, paradoxically, even as sales decline in many of these categories, or some brands cut back spending because products are out of stock, bids on many Amazon keywords are rising as more bidders emerge, he says.
Killingsworth and Chopra also believe events of recent weeks—including price gouging that can reflect badly on brands—will make more marketers restrict how many third-party sellers can handle their goods and better police how their brands are presented on Amazon.
In one case previously, Killingsworth says Hinge found a major food brand had 11,000 independent sellers on Amazon across the U.S., U.K. and India, but at the time wasn’t concerned. Now, that’s likely to change.
“We’ve been talking to major brands about this for years, and they’ve kind of turned a blind eye to it,” Killingsworth says. “But I think a situation like this certainly shows there’s a responsibility to protect both the brand equity and the consumer experience. We’re working with companies right now to prevent people from being able to create their own listings and make some claims that aren’t factual.”
Amazon’s temporary restrictions on distributing nonessentials are also making more brands and third-party sellers look to operate elsewhere, Chopra says. Certainly, that’s the case for Etailz.
“Previously the strategy was to work with our brands to emphasize the Amazon channel over Walmart, only because we knew the demand on Amazon would be a lot more,” he says. “But once Amazon started shifting its policies, now it’s a different ballgame. Now we’re trying to balance the portfolio back into this omni-marketplace approach.”