With more than 3,700,000 worldwide, the Coronavirus pandemic has taken a toll on the lives of numerous people. But the COVID-19 crisis is not only a question of health but also an economic challenge.
In the U.S., over 24 million Americans filed for unemployment benefits until the beginning of April and many companies fear that they have to give up their businesses, either now or in the expectable recession.
To stay afloat, many corporations are switching to other options, for example by selling online.
From a Supply Focus to a Demand Focus
Concerning the ecommerce sector, the crisis started out as a supply problem. With China being hit hard starting early this year, lots of factories were closed.
Even if production was partly running, supply was still lower than demand. With China slowly going back to normal, and the Coronavirus spreading over the world, the problem is shifting from supply to demand.
On Amazon specifically, some product categories (e.g. fashion and shoes) saw a decline while other categories as groceries and home basics (yes, also toilet paper), home office tools, gardening equipment, fitness or the entertainment sector experienced a boost in sales on Amazon.
There are different reasons for these trends:
a) a shift from brick and mortar stores to online shopping;
b) bringing the future into the present, which means stocking up on essentials now that would have been bought in the future (again, toilet paper);
c) situational orders, that is home office tools or fitness gadget that are now needed but probably do not have to be bought again, once the home is “quarantine ready”.
Challenges in Terms of Logistics
A survey by ecommerce software provider Sellics (conducted in mid-March) shows that many online sellers were rather optimistic when the crisis started.
They believe that ecommerce might see long term benefits resulting from the current situation, because of changing shopping behavior and habits in favor of online shopping. However, short term, there are also new challenges in terms of logistics for ecommerce and for Amazon.
The company hired about 100,000 additional workers and plans to hire another 75,000 more. On top of that Amazon reduced restocking of non-essential items bought from suppliers (vendors).
It also restricted restocking for non-essential items that are sold by 3rd party sellers and fulfilled by Amazon (FBA – Fulfillment by Amazon).
While products such as baby care or medicine are prioritized, non-essential items faced long shipment times or even out-of-stock situations.
Both factors have a direct impact on a product’s ranking. Less sales mean a decrease in the rankings. A bad ranking leads to less sales. In this downward-facing spiral, it can be incredibly hard to get things back to normal.
Brands Were Looking For Alternative Fulfillment Channels
Because of the restrictions for non-essential items, many Amazon sellers and vendors were looking for other ways to ship their products to customers.
Sellers using FBA tried to set up their own shipping (Fulfillment by Merchant – FBM). Vendors on the other hand were considering setting up seller accounts to use FBM, or were distributing their products via their seller networks.
Overall, many products were not available via FBA or Prime anymore so that more merchant fulfilled items were suddenly present in the Amazon Buy Box.
Fortunately, Amazon has recently resumed activities for non-essential items so that stocks can now step by step be replenished again and shipping times have begun to decrease.
Advertisement During the Crisis
In the mid-March survey by Sellics, nearly 40% of the surveyed brands were also reporting that they were expecting advertising budget cuts.
Some brands indeed decided to cut back on advertising because they were facing (soon-to-be-) out-of-stock, increased delivery times or decreased demand.
However, recent overall advertising performance has been strong on Amazon. Many advertisers saw a strong increase in advertising sales over the last weeks.
This trend was accompanied by decreased competition and hence by lower click prices and increased advertising efficiency.
The new ecommerce world has become a very dynamic, ever-shifting environment during the COVID-19 crisis.
Subsequently, brands should always keep track of the latest developments and adjust their sales strategies flexibly and in accordance with up-to-date information.
With the shift from brick and mortar to online shopping, however, ecommerce has now been able to take a great leap and has the chance to actively shape the future of retail faster than the world might have expected.
About the Author: Franz Jordan is the CEO of Sellics, the leading All-in-One Amazon software platform that powers both SMBs and enterprises to scale their success on Amazon.