The coronavirus pandemic has tested the patience of Amazon (NASDAQ: AMZN) shoppers, as many of the perks they’ve come to expect from the website, such as free, two-day shipping and an endless library of affordable products, are no longer guaranteed.
It’s easy for consumers to point the finger at Amazon for out-of-stock notices, far-off delivery dates and higher prices.
But Amazon and the sellers that supply the products on its site are not entirely to blame.
Amazon has been combating coronavirus-related issues on multiple fronts for the past several months. It was hit with a surge of online orders in March as shoppers were panic buying essential items on its site. At the same time, Amazon was policing a widespread price gouging problem and its grocery delivery services were buckling under the weight of online orders.
By mid-March, Amazon made the decision to prioritize shipments of household items and medical supplies at its warehouses, while vastly limiting who could sell goods like face masks and sanitizer, which left many sellers in the lurch.
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Last month, Amazon started allowing merchants to ship in some nonessential items, but it is still limiting the quantity of items in new shipments. The quantity restrictions signal that the logistics nightmare might not be over yet for Amazon or third-party sellers, who say the restrictions are preventing their businesses from recovering.
Amazon and the third-party sellers that make up more than half of its sales agree: There were few ways anyone could prepare for the crisis and the supply shortages and delays that came along with it.
“They had no time to plan and that’s the really scary part,” said James Thomson, a seller consultant and former head of Amazon Services, the team that recruits third-party sellers to list on Amazon’s marketplace.
“Amazon is great at forecasting when the data is predictable. Well, this was unpredictable.”
‘No such preparation’
Amazon’s fulfillment and delivery operations are used to taking on millions of packages per day, but the coronavirus presented a unique set of challenges.
The company continues to deal with delivery delays caused by bottlenecks in its logistics network. Shipping methods it would usually rely on have strained capacity, making it harder for Amazon to quickly transfer inventory from one fulfillment center to another. On top of this, Amazon’s last-mile delivery partners struggled to handle the demand from the surge in online orders.
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For every wrinkle in the shipping process, time is tacked onto the delivery date, frustrating shoppers and merchants who are used to Amazon’s traditionally speedy one- or two-day delivery promise.
Amazon acknowledged on its most recent earnings call that it quickly became overwhelmed by the demand for essential items at the height of the crisis.
“While we generally have experience in getting ready for spikes in demand for known events like the holiday season and Prime Day, we also generally spend months ramping up for these periods,” Amazon CFO Brian Olsavsky told investors on the call. “The COVID crisis allowed for no such preparation.”
Additionally, in an April memo to sellers, one of the top executives that oversees Amazon’s sprawling marketplace, Dharmesh Mehta, acknowledged the situation “is definitely not business as usual.”
As it raced to keep up with a spike in online orders, it also faced growing unrest among warehouse workers across the country. Workers who feared for their safety on the job were absent for weeks or more than a month as they took advantage of unlimited unpaid time off (a policy that has since been eliminated).
Inside warehouses, social distancing rules meant workers were farther apart than usual, which slowed down the process of getting packages out the door. The company has hired more than 175,000 warehouse workers and delivery drivers to better keep up with the demand.
Given the scale of the issues at hand and their variability, Amazon has hesitated to provide any kind of prediction for when delivery times will return to normal.
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The pandemic has made it harder for Amazon to source more products at its warehouses when it needs them. If a shopper places an order for an out-of-stock item, Amazon can usually take steps to get that product quickly from another fulfillment center.
Those levers have largely been inaccessible during the pandemic, and its remaining options take longer to deliver or are much more costly, Thomson said. For example, Amazon may be relying more on trucking amid higher air cargo costs and limited capacity. Trucking is inherently slower than flying packages across the country.
It’s a problem that’s especially difficult to solve because Amazon “can hire a million new people, but it doesn’t matter if there’s no air cargo,” Thomson said.
“One of the reasons Fulfillment by Amazon is so good is they have so many modes of shipping,” Thomson said. “They figured out how to optimize all those pieces, but all of a sudden, those pieces don’t exist. Amazon is having to optimize its network using higher expense or longer time transportation modes.”
These types of efficiencies are crucial in order to reduce delivery delays, Olsavsky said on the call.
“The cost structure, the ability to get products, your capacity for shipping and delivering, those are usually things that you can take for granted,” Olsavsky said. “And in this quarter you can’t. That’s really where the uncertainty is driven.”
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Sellers bear the brunt
Third-party merchants told CNBC they felt the company made the right decision by prioritizing essential items, but that it also created headaches for their businesses.
Merchants said the quantity restrictions mean they won’t be able to ship in all the inventory they were hoping to sell. As a result, they won’t be able to restock some products, even some that are best-selling items on the site.
All the while, demand for goods remains at levels similar to Black Friday.
“There’s no doubt that the US response to this crisis has been to buy more things online,” said Chris Palmer, an Amazon seller and CEO of SupplyKick, which advises sellers and brands. “Amazon’s hallmark is being the everything store and all of a sudden you have hundreds of millions of people that want a very narrow selection of products, like face masks and toilet paper.
“I don’t think Amazon was very well set up for that,” Palmer added.
One longtime Amazon seller said the delivery days have been the biggest challenge to navigate for his business, which sells children’s toys. This seller requested anonymity because they feared Amazon would retaliate.
In March, some of their products showed delivery times as far out as May or June. The situation has improved, but it remains unpredictable, changing not only every week but sometimes multiple times in a single day. In many cases, items are earmarked to ship in a few weeks, but suddenly the delivery date moves up to a few days from when it was ordered. The seller believes Amazon may be underpromising and then overdelivering.
“I’ve never seen anything like this,” the seller said.
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Tom Sesti, director of ecommerce for consumer goods company HoMedics, said the company has struggled to forecast annual sales for the business because it can’t send in certain product categories to Amazon. Additionally, consumer buying habits continue to shift wildly, so HoMedics stopped focusing on low-volume products, such as headphones and speakers, and started manufacturing in-demand items like personal protective equipment.
“What is the world going to be buying for the rest of the year, compared to what we thought they’d be buying? We don’t know,” the seller said. “So you pick the ones you think will succeed and the ones that are going to be pretty weak, you forecast down, because you don’t want to have extra inventory sitting around and have cash locked up.”
An Amazon spokesperson told CNBC in a statement that it appreciates its “selling partners’ patience” while it has prioritized essential items at its warehouses. The spokesperson added that Amazon is limiting products by quantity so that it can continue to get essential goods to customers and protect warehouse employees.
Until Amazon allows sellers to ship in new products at normal levels, many of them will continue to struggle with their businesses, said Fahim Naim, a former Amazon executive and CEO of e-commerce consultancy eShopportunity.
The brands he oversees send in thousands of units per shipment, which makes the cap of 50 units per order “basically useless” if they’re trying to keep up with current demand and deliver items on time.
“It’s a little bit like window dressing,” Naim said. “At a 10,000 foot level, they’re directionally getting better, but it is a little bit of a roller coaster from the product level.”
[Opportunity: How You Can Get Paid Every Time a Package Leaves the Amazon Warehouse]
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