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Amazon’s ‘non-essential’ sellers return but still face an uphill struggle

22 Apr 2020

When Amazon announced at the weekend that it would lift its month-long exclusion of “non-essential” goods from its warehouses, its millions of third-party sellers enjoyed a brief moment of relief.

Soon, however, this was replaced by a whole new range of frustrations: huge order backlogs, strict unit quantity limits and unpredictable policy changes.

“We have orders that go back as far as March 22 that have not been shipped,” said Brandon Fuhrmann, a leading seller of kitchenware on the platform. “We have several thousand orders in the ‘pending’ category. It’s a big chunk of change.”

Amazon’s decision on March 16 to prioritise household staples and medical supplies over items deemed “non-essential” freed up the capacity necessary to handle a world on lockdown. However, it also left millions of third-party companies, which rely on Amazon’s reach and logistics in order to survive, in the lurch.

Collectively, it is estimated that these third-party sellers make up almost 60 per cent of Amazon’s retail revenue.

Part of the difficulty they now face in resuming their operations is that Amazon’s restriction-lifting has come with strict conditions. “While a broader set of products can now be sent to our fulfilment centers,” a note said, “we are limiting the quantity you can send for some of these products.”

That limit, imposed on a unit-by-unit basis, is determined in part by an algorithm that takes into account past sales, based on a time period the company has not specified. The algorithm’s decision is final: Amazon has said no requests for additional quantity will be considered, frustrating those fortunate sellers whose wares are particularly popular in a lockdown — such as Mr Fuhrmann’s home kitchen products.

“When you’re basing it off a historical time period, it’s not really indicative of how quickly we’ll sell them now,” he told the Financial Times. “Sales have been through the roof. We’re selling 200 [chopping boards] a day, when before Covid we were selling 20 or 30.”

Also of concern are delays in shipping caused by virus disruption, which slow down revenue generation and frustrate customers. Despite booming demand for Mr Fuhrmann’s products, until Amazon actually ships an item, neither he nor the company gets paid. And the customer, used to two-day delivery, may now have to wait weeks for their items to arrive.

“We understand the impact that Covid-19 has had on many of our selling partners and are working hard to help them during this difficult time,” said Amazon, “including waiving certain fees, pausing loan repayments, providing regular updates . . . and relaxing our policies around shipping-related performance metrics to mitigate impact on their account health.”

But sellers say the unpredictability of Amazon’s policy changes, which are often announced and enforced at the same time, exacerbates their problems. Without forewarning, or any possible way of knowing what the next few weeks and months might hold, sellers say they are being forced to predict the future — taking risks on what will or will not be allowed into Amazon’s logistics network, and at what volume.

“It’s clear Amazon probably misunderstood the magnitude of the changes,” says Juozas Kaziukenas, from Marketplace Pulse, a research company that gathers data on third-party seller activity. “If a seller is having products being manufactured in China, but now Amazon says it can only take 50 units, where does he put the rest of those products?”

The straightforward answer is: somewhere else. But the mass migration of sellers to other marketplaces — such as Walmart or eBay — doesn’t seem to have materialised in the way one might have assumed, as sellers have struggled to relocate their businesses, while recognising that working with Amazon comes with financial advantages that few other marketplaces can offer.

“Ebay, Target, Google Shopping, and other marketplaces saw no acceleration at all,” wrote Mr Kaziukenas, referencing Marketplace Pulse data on seller growth over the past few months. “That is not to say that sellers already using those marketplaces are not seeing growth in sales — they are — however, sellers not on them yet do not appear to be expanding their channels. Or, often, do not have the fulfilment capability to sell elsewhere effectively.”

Even before coronavirus, many Amazon sellers were aware that it was the efficiencies of using Amazon’s logistics to store, pack and distribute goods — a service known as “Fulfilled by Amazon” — that made their businesses work at all. “It’s the only way my product is profitable,” said one seller who offers a small range of car care products. “Without free shipping, a lot of people won’t drop the actual $7 to $13 it costs to ship them the product.”

And even among large sellers that can afford to diversify, and have done so during this crisis, there is little sign Amazon has to worry about winning them back when conditions eventually, presumably, get back to normal.

Etailz, a leading seller that handles about 4,000 well-known brands, said it had been able to minimise the effects of Amazon’s coronavirus restrictions by ramping up selling across other marketplaces and by using Amazon’s “Fulfilment by Merchant” option — where orders are received via but products are distributed to consumers directly — circumventing Amazon’s own logistics.

However, noted Etailz chief operating officer Mitchell Bailey, this was only a stopgap. “At the end of the day,” he said, “[using Amazon] is quite dramatically less expensive.”

Source: Financial Times