How Amazon sellers can adjust to the e-commerce crush from coronavirus
The coronavirus pandemic has exposed cracks in Amazon’s e-commerce fortress, which controls a sizable portion of the nation’s online ordering and delivery infrastructure, and brands and sellers that rely on the company need to take stock of their strategies to keep up with the changing times, according to retail and advertising industry executives.
Within the past two weeks, major brands like Clorox and Lysol have seen products sell out on Amazon and other online retail sites. This week, Amazon also issued an order to sellers of nonessential products that it won't be accepting new shipments until April 5, so it can free up space in its warehouses for essential items like food, medicine and cleaning supplies. “I see this as a big challenge for brands of many different categories,” says Mark Power, CEO of Podean, an Amazon marketplace marketing firm.
As for Clorox and Lysol, the challenges are different. Products like disinfectant wipes are considered essential, but they have been sold out for weeks. The shortage is being filled by lesser-known brands with questionable—and often overpriced—products.
Amazon accounts for about 40 percent of all e-commerce in the U.S., according to eMarketer. It has become a retail lifeline during the coronavirus pandemic, which has led to a national state of emergency in the U.S. Advertising executives say that a revolution in shopping is already underway. “There’s been a massive change in consumer behavior,” Power says. “If one company can get through this, it’s Amazon, with the overwhelming demand it’s going to have.”
Sellers and brands will have little choice but to adjust as Amazon adjusts. Here is what those types of companies face:
Distribution chain points
“A lot of sellers never expected to be betrayed like this,” says one top e-commerce marketing exec, who works at an Amazon marketing agency and spoke on condition of anonymity. The exec was talking about Amazon’s order to halt shipments of nonessential products as it focuses on only the necessities.
Amazon’s freeze on nonessential inventory lasts until April 5. Consumers can continue to buy items that are in stock, but once those reserves run out, the sellers won’t be able to restock them until at least then.
“The companies that are looking at this as a betrayal, that’s the word I see used,” the executive says, “are just the small sellers, the one-person operations, two-person operations. Their livelihoods are very tied up in that one business and they have successfully supported themselves and always thought they had Amazon as that necessary partner.”
Third-party sellers accounted for $17.5 billion in sales on Amazon in the fourth quarter last year, according to Amazon’s public filings, which represented a 30 percent increase year over year. Amazon’s total sales reached $87.4 billion, an increase of 21 percent year over year.
These small sellers need to learn from some larger brands that sell through Amazon and diversify their distribution channels. There are companies like Whitebox that facilitate deliveries for Amazon sellers. “For companies that have alternatives, Amazon’s shipping changes are a concern but it’s not a big deal,” says Will Margaritis, SVP of e-commerce at Reprise, an Amazon marketplace agency. “They’re going to be fine, they’re not going to have a single lost sale.”
Search and don’t find
The Amazon shelves are running bare, especially on the more practical goods, like canned foods and household supplies.
Clorox and Lysol are showing up as “out of stock.”
What’s filled their place are many third-party sellers offering name-brand products, often at inflated prices. That has led to concerns of gouging. There also are search results promoting lesser-quality products.
On Friday, a search for “disinfectant wipes” served Amazon ads for unknown sellers with names like WYFF and JPODREAM. Meanwhile, the name brands simply say “unavailable.”
“We’re seeing brands here that I’ve never seen before in the space,” says an advertising agency executive who specializes in e-commerce and spoke on condition of anonymity.
“Amazon’s algorithm is saying Lysol and Clorox products are out of stock, so it is de-prioritizing them in search results,” the advertiser says, “which means people are going to lesser-known brands, which causes them to spike in search rankings.”
Amazon declined to comment for this story, but the company has been saying it is trying to police the platform for unscrupulous sellers that are trying to capitalize on the coronavirus scare. At the end of February, Amazon said it kicked off a million fake products promoting coronavirus fixes.
Clorox and Lysol both declined to comment on whether they would change their online sales strategies in the wake of the Amazon problems.
What brands can do right away to address Amazon shortages is simply turn off their ads. Amazon will typically turn off promotions, anyway, for products that are out of stock, but not always, according to Amazon marketplace experts. Advertisers have to monitor their own spend and make sure they are not wasting money promoting goods that aren’t even available.
If consumer product companies don’t need e-commerce ads because there is no stock to fulfill the orders, then marketing strategists recommend retooling campaigns to promote wider brand messages. Brands can point people to their online videos and other digital spaces during times when they are unable to drive sales.
Now is also the time to start thinking about how to adapt to the new shopping habits that are emerging. Online shopping for consumer products is up 600 percent since the start of the coronavirus outbreak, according to one ad industry insider who spoke on condition of anonymity because of close relationships to major consumer goods companies.
Consumers are increasingly willing to purchase product categories like food, beverage and household supplies online. People are now also more receptive to pre-orders and automated delivery renewals, according to Keith Anderson, SVP of strategy and insights at Profitero, an e-commerce analytics firm.
“There are also potentially several structural shifts, systemic shifts, that are possible,” Anderson says. “Those are things like pre-ordering, which is becoming more common in more categories.”
A performance brand firm called WITHIN says that it has seen clients close stores and move products online with new e-commerce strategies. It issued a new report called Retail Pulse, and said a beverage brand, which it didn’t name, closed more than 70 stores and started running digital ads to boost its delivery business. “The entire company is now focused on the goals of pushing bulk orders and subscriptions,” WITHIN said in the report.
Where to sell
As sellers and brands look to bolster their online businesses, they could flock to Amazon alternatives, according to Margaritis of Reprise. Walmart and eBay both have competitive third-party seller services.
“Everyone needs to look where they’re diversifying selling a little more seriously,” Margaritis says.
Companies could become more reliant on these types of marketplaces, including Amazon, according to Anderson. In recent years, companies have been rushing to develop their own direct-to-consumer websites and services, but the coronavirus has shown that consumers are relying on the largest e-commerce sites.
“Brands are now placing less emphasis on D-to-C, and more emphasis on marketplaces,” Anderson says. “That’s where everyone is searching and also getting products fulfilled, [and] where shoppers just keep adding to their carts."