When the news about Coronavirus broke earlier this year, Amazon sellers forecast that the outbreak will likely cause a significant decline in their business. They predicted such an effect because almost 70% of sellers import their products from China. Meaning this will cause a disruption in the supply chain of products, as also indicated in some Amazon supply chain analytics.
Along with the WHO’s declaration that the Coronavirus, known as COVID-19, is now a pandemic, the shipment of non-essential products from outside the U.S. became extremely difficult. This has created some uncertainty amongst Amazon sellers as to whether or not they can maintain the supply of products they offer, as also indicated on some Amazon supply chain analytics.
So, how did COVID-19 affect the Amazon FBA inventory, and what are the new regulations that sellers have to follow?
The Amazon Effect Supply Chain: Impact on Amazon Sellers
An online survey completed by more than 600 Amazon sellers revealed that the participants anticipate the following points:
- There will be a significant decline in sales and profit –
Many Amazon sellers have already seen a notable decline in their sales and profit at the start of the Coronavirus spread, even weeks before the announcement of the new Amazon FBA inventory regulations. Almost half of the survey participants expressed concern that the decline will continue for months after the outbreak ends. This forms part of the Amazon effect supply chain.
- A rise in product prices will take effect soon –
While most of the survey participants have yet to raise the prices of their products on Amazon, about 10% of the sellers already did. Nevertheless, consumers should be weary of this as Amazon commits to penalizing any seller for overpricing, especially for high-demand supplies that are essential at this time, such as hand sanitizers.
- The need to search for alternative product sources arises –
Amazon sellers who participated in the survey verbalized their struggle to order, ship in, and restock their supplies from China due to the COVID-19 pandemic. About 50% of the participants shared that the turn-around time for their shipment to arrive had increased. More than 30% said that their Chinese suppliers stopped their operations. And, the rest said that they are having a hard time communicating with their suppliers.
More than half of Amazon sellers are keen to search for alternative suppliers other than those in China. Some of the countries considered by sellers include India, Vietnam, Mexico, Taiwan, the United Kingdom, Canada, Thailand, Pakistan, and Turkey. Some also eye local manufacturers in their respective states, likewise introducing the idea of online arbitrage.
Shortage of Supplies and the New Regulation
As sellers feel the economic impact of the COVID-19 outbreak, Amazon initiated new regulations on accepting products to store, and ship to and from its warehouses. Only essential items will be kept in stock. And if needed, Amazon will extend efforts to expedite orders to different states. Essential elements include basic household needs, medical supplies, and other miscellaneous items.
Amazon said that products that fall into one of these six categories will still be accepted.
- Baby products
- Health and household products
- Beauty and personal care products
- Grocery items
- Industrial and laboratory supplies
- Pet supplies
The new regulation from Amazon on their product supply chain was communicated to all third-party sellers who store their items in the company-owned warehouses under the Fulfillment by Amazon program. This change also covers wholesale vendors who directly supply goods to Amazon.
According to an Amazon spokesperson, the company is predicting a rise in demand for online shopping, which can cause a shortage of household and health supplies. He reiterated that while they understand that the new regulation will have a massive impact on the Amazon FBA inventory, their goal is to prioritize the basic needs of every household during the Coronavirus pandemic. Amazon announced that while they continue prioritizing the products they can receive beyond April 5, they are now able to broaden the list, which they are doing by an item-by-item basis. You can read more from Amazon’s Restock Inventory Page.
Various governments worldwide are encouraging people to stay inside their homes as the number of COVID-19 infections rise. Because of this developing situation, more households turn to Amazon to replenish their supplies instead of going outside to shop at physical stores. But, even with ample preparation, the rush of shoppers in specific categories resulted in a shortage of health and household items, including hand soaps, sanitizers, toilet papers, and face masks. Amazon always reminds sellers not to take advantage of the situation by increasing the prices of these essential items.
Amazon announced its initiative to hire 100,000 warehouse personnel to address the increasing demand for online orders during the COVID-19 outbreak. Consequently, the pandemic made Amazon and its sellers aware that even with the digital utilization for logistics and automated warehouses, you cannot prepare adequately, which highlights the need for fast and effective intervention.
However, not all were pleased with this announcement. Some sellers, who have physical stores, aired out their concern that the Amazon initiative could cause more businesses to fall. They said that focusing more on online selling could damage small businesses amidst the Coronavirus crisis.
On the other hand, Amazon sellers, themselves, are not happy with the proposed arrangement as they do not have the proper resources, such as the boxes, packaging materials, and the area to do the packing. They also said that it would be difficult to ship their products to warehouses due to travel restrictions across the country.
With these concerns raised, Amazon said that they acknowledge that the changes will affect businesses and that they are considering their decisions very carefully.
Developing Situation at an Amazon Warehouse
Before the month ends, Amazon announced that it had to close their warehouse in Kentucky as three personnel tested positive for COVID-19. They said that the closure is indefinite as they do not want to put their workers at risk.
The Kentucky warehouse is responsible for assessing returned items. Warehouse workers were initially informed that the facility would be shut down for 48 hours for deep cleaning and sanitizing as soon as the confirmation of the positive cases rose. After the 48-hour turn-around time, before the scheduled return of the warehouse personnel for their shift, all staff received an automated call telling them that Amazon decided to close the facility indefinitely. Amazon also assured its employees that they will receive their pay even with the closure and that they will get in touch again once there is a reopening schedule.
The closure of the Kentucky warehouse is Amazon’s first facility to close because of the COVID-19 outbreak. As of today, there are at least ten facilities in the USA that have confirmed cases of the Coronavirus, but Amazon continued operations based on the decision to keep the delivery of essential goods to thousands of households across the country. Amazon is assuring that they are practicing proper cleaning and sanitation to uphold their workers’ safety amidst the pandemic.
After Amazon’s announcement that it is focusing on shipments and deliveries for essential goods, warehouse workers reported that some non-essential goods like watches and dresses are still included in the delivery list in some states, including New York.
What Can You Do?
With the significant switch in the business flow of Amazon and other online selling companies, there are numerous things sellers can consider:
- Search for possible suppliers, other than what you have now –
When looking for a new supplier, make sure to check the background of your target manufacturer and its certifications. Check feedback and recommendations from online forums.
- Switch from FBA (Fulfillment by Amazon) to FBM (Fulfillment by Merchant) until the pandemic ends –
If your resources permit, utilize Amazon as your selling platform and if possible, switch to FBM as your primary fulfillment method for now.
- Consider other business strategies –
The COVID-19 situation has forced all businesses to rethink and reassess. To keep your business up and running, consider additional avenues and approaches, such as dropshipping and retail arbitrage.
- Hang-tight, the situation will pass –
The global economy goes through constant peaks and troughs and always manages to bounce-back. For sellers who rely solely on Amazon FBA, bear in mind that Amazon is moving quickly to salvage the situation and revert back to normal.
With the global COVID-19 pandemic, the demand for goods and products has hit an all-time high. Due to the increased demand of products and the challenge that countries such as China are facing with maintaining production and delivery, many fear a supply shortage. While Amazon has initiated possible measures to address this concern, it still needs additional support from sellers to meet customer demand.
Still, the retail giant reiterated that its commitment to deliver goods is one of their priorities, especially during this trying time. They reassured their workers that their dedication would not be in vain, as they will get paid amidst the closure of some facilities.