As pending deliveries clog supply chains, the world’s biggest online retailer Amazon plays for time by imposing restrictions on non-essentials. But at the same time Jeff Bezos has become wealthier by $30 billion.
The pandemic has brought the world’s richest man Jeff Bezos close to becoming the first trillionaire.
After struggling to cope with unprecedented demand since the start of the coronavirus pandemic, Amazon is policing shopping carts at checkout in a bid to control volumes. Prices of most products on the site have shot up considerably over the last two months. This left many customers fuming, including those with $112 a year PRIME memberships.
However, Jeff Bezos has shrugged off the criticism over this. He was quoted by CNBC as saying, “If you’re a shareholder in Amazon you may want to take a seat because we’re not thinking small.” Bezos revealed that Amazon has invested in excess of six hundred million dollars ($600 million) in Covid-19 related costs in Q1 2020 while the first-quarter profits went down 29 percent. Furthermore, the e-commerce giant expects these costs could grow to four billion dollars or more in Q2.
But Amazon officials have remained tight-lipped about measures it took to control delays and also the definition by which it defined essentials and put restrictions on products.
Jeff Bezos’ flip-flop policy comes in for criticism
On the other hand, sellers are feeling let down because Amazon won’t allow inventory into Fulfilled By Amazon (FBA) storage hubs. This is causing an uproar because Amazon’s own electronic products are being categorized as essential and are shipping as before.
So, a Kindle might get through the gatekeeper while all other deliveries have been waitlisted.
The company’s definition of what constitutes essential items – and the computer algorithms that differentiate between goods – has come in for criticism from sellers across product categories, some of whom have been using the service for years. The fact that hair ties are being used to make masks shows just how much buyer behavior has changed over the last couple of months. Incidentally, Amazon has deemed them as non-essential!
High margin items like TRX bands, on the other hand, which can hardly be called essential items, face no such restrictions. Critics say Amazon Seller Support insists that limits on non-essential items are under review but there is no hope things will change anytime soon.
Struggling to stay afloat
In Amazon’s defense, the company’s supply chains have been strained with mounting backlog and employees protesting against poor safety measures at some of its sites. Some workers have been taking unpaid time off, under a new policy announced in March, to self-isolate or avoid exposing themselves to the disease. The company has now announced that it is revoking the policy with immediate effect. Under the circumstances, slowing down demand temporarily may be the only way out for the company.
The website’s home page wears a rather desolate look with usual ads for coupons and special deals scrubbed. Product recommendation widgets had also been turned off and international shoppers were being told to visit their respective national Amazon portals for faster delivery. Amazon ads on Google – a major source of revenues for the latter – have disappeared almost overnight, another tactic to slow down traffic to the site. That’s not all, affiliate commissions have been cut by up to 80%. The popular Mother’s Day promos were nowhere to be seen. Unconfirmed reports say the company has postponed the top-grossing annual event until August.
The company says that the ban on incoming inventory is being gradually lifted even as it works overtime to augment its 500-strong network of warehouses around the USA. Amazon is trying to douse several fires at once, so to speak. At least 4 employees are reported to have died from COVID-19 related complications while nation-wide figures for infections are being kept under wraps. Since March, the company has hired 175,000 workers to improve shipping times which have jumped to over 30 days in some cases. Last-mile delivery problems have contributed to Amazon’s worries.
That apart, it has also had to stop delivering in countries like India where the government has banned sales of non-essential items until further notice. Perhaps for the first time in the company’s 26-year-old history, Amazon is suggesting that sellers make their own shipping arrangements to circumvent delays on the FBA network. Larger companies are taking advice and have started shipping their own products. However, smaller ones that lack the resources to do this have been left high and dry. With sales down more than 30% in some cases, many sellers may go out of business unless alternatives can be found.
Business recovery plans set into motion
With the current impasse at Amazon, customers are now looking elsewhere to meet their needs. Sales on Walmart.com have been growing steadily and the company has now launched a delivery app of its own. It hired more than 150,000 workers earlier than planned and is offering customers guaranteed delivery in under 2 hours for an extra $10. Amazon has since put together a team of executives to find ways to restore deliveries to pre-pandemic levels.
However, it will likely be a while before things go back to normal again. According to the Wall Street Journal, company representatives were non-committal on how long it might be before delivery bottlenecks are finally resolved. New fulfillment centers have been announced in California, Georgia, and Maryland while it is also adding space in North Carolina, along with a new headquarters in Virginia.
Amazon has struck up a deal with California-based regional carrier, Sun Country to use 10 of the latter’s Boeing-737 airplanes to ferry packages around the country.
Industry watchers say that it is only a matter of time before Amazon scales up operations significantly allowing to once-again reclaim its position as the top e-commerce player of the world. Customers have little choice but to wait until Amazon sets its house in order.