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In its Q1 2019 earnings call, Amazon CFO Brian Olsavsky casually mentioned the company was pivoting to one-day shipping, effectively throwing another gauntlet at the ecommerce industry.
Fast forward 12 months and that one-day shipping program is more or less on hold. Product shortages remain and workers are striking, so—no surprises here—Amazon’s Q1 2020 call was all about its response to coronavirus.
Here are five insights which emerged from the call into the notoriously tightlipped company during the global pandemic:
It’s anybody’s guess when one-day shipping will be back
After absorbing unexpected changes in demand and stabilizing operations by focusing on essential items and extending shipping times from one to four days, Olsavsky said “things are still so up in the air,” so he can’t predict whether Amazon will return to one-day shipping “in Q2 or Q3 or beyond.”
Its investments to scale up to one-day delivery last year, like moving inventory closer to customers and building out its logistics network, are “coming in very handy to us to help get more capacity out of what we currently have,” Olsavsky said. “So it’s really a combination of how long it takes to get things in stock, picked, packed and shipped. … It’s taking longer to get things into our warehouse and out of our warehouse. So that’s really the challenge right now to speed that up, and that will, when we do that, we’ll see a resumption of more one-day service.”
Amazon has reduced its own marketing spend because of product shortages
In his opening remarks, Olsavsky noted Amazon has taken steps to “dampen demand” for nonessential products it may not have in stock right now—including by reducing its own marketing spend.
“We will continue to moderate our marketing in the time period when … the demand we are trying to fulfill is there and there’s some products that are still out of stock,” he said. “So it doesn’t make sense to always do marketing, especially variable marketing in those situations.”
When asked if everything will go to go back to normal in the second quarter, Dave Fildes, director of investor relations, said it’s an odd quarter because generally the biggest uncertainty Amazon has is customer demand, but now it’s more about the ability to service that demand.
“Usually the things you can count on, the cost structure, the ability to get products … your capacity for shipping and delivering, those are usually things that you can take for granted, and in this quarter, you can’t,” he said. “That’s really where the uncertainty is driven.”
Third-party sellers are shipping orders themselves.
As Amazon works out its supply and logistics challenges, third-party sellers are turning to direct shipments to customers, a practice known as its Merchant Fulfilled Network (MFN). That also means there’s been a drop in orders in Amazon’s Fulfilled by Amazon (FBA) program in which sellers ship inventory to Amazon’s warehouses.
“MFN is picking up a lot of the opportunity and sellers are taking that opportunity to ship direct because then it doesn’t have to come into our warehouse obviously,” Olsavsky said. “We’re trying to minimize the impact on FBA sellers as we open up our warehouses as well.”
Unlike the holiday season and Prime Day, for which Amazon “generally [spends] months ramping up,” with suppliers and sellers, Olsavsky noted, “The Covid crisis allowed for no such preparation.”
The spike in demand for household staples and essentials and drop in demand for discretionary products “created major challenges in our operations network,” Olsavsky said.
“I think we’ve learned that it’s easier to get ready for a holiday or a Prime Day then it is to be ready for something like this when everything hits at once,” he added. “High demand and also a need to restock automatically and prepare for it … we’re doing our best to maintain and provide key services … and essential items for our Prime customers and all our Amazon customers.”
But, he said, Amazon is not purposely favoring the products it sells itself over those of its third-party sellers.
“We’re prioritizing essential items, and a lot of those tend to be, especially in the consumable area, tend to be retail supplied items from vendors,” Olsavsky added.
Grocery is up across the board.
No surprises here: Fildes said demand for Prime Now, Fresh and Whole Foods increased in March and continued through April.
“And a lot of our focus is on working around the clock and offering as much delivery as possible,” he added.
As availability remains limited, Amazon said it has increased its grocery delivery capacity by more than 60% and expanded pickup from 80 to 150 Whole Foods locations.
But in-store shopping at Whole Foods also saw a year-over-year boost of about 8%.
“So that’s up quite a bit from the run rate you’ve seen in some recent quarters,” Fildes said. “It’s again similar, we saw lots of folks where stay-at-home measures were not yet in place were shopping in large volumes and stocking up at our stores. Since that time more recently, we have seen some of those growth rates for the in-store shopping moderate some.”
Prime members are using more Prime services
With many of Amazon’s 150 million Prime members worldwide stuck at home, Olsavsky said they are shopping more frequently and building bigger baskets and also using other Prime benefits “that maybe they hadn’t used as much in the past.”
In March, for example, viewers of Amazon content doubled. Customers also using Alexa more to ask questions, play music and educate their children.
Olsavsky added: “I think we’re seeing a lot more on the communication side using people using Alexa calling and drop in.”
