Amazon has grown to dominate ecommerce in part by whittling its delivery windows down to unprecedented timeframes. As a result, 150 million Prime members have extraordinarily high expectations not only for what they can order, but how quickly it will arrive.
Ecommerce intelligence firm Marketplace Pulse estimates that Amazon typically saw more than 10 million orders per day before the coronavirus pandemic drove a “surge in demand from people relying on Amazon’s service during this stressful time,” according to the ecommerce giant.
It’s unclear how many more orders Amazon is fulfilling now, but the platform has certainly made some bold moves to accommodate the shoppers flocking to its platform as they strive to follow directives about social distancing.
That includes hiring 100,000 temporary workers and telling third-party sellers it’s prioritizing household staples, medical supplies and other high-demand products in its U.S. and E.U. marketplaces, and will not be accepting shipments of products in other categories until April 5 at the earliest.
According to Zach Weinberg, director of Gartner’s Amazon Advisory group, the platform uses algorithms to predict consumer demand and sales spikes, which allows it to adjust warehouse inventory accordingly.
“I imagine they’re using those systems to the best of their ability [to figure out] what they need to replenish,” Weinberg said. “Amazon has many fulfillment centers and frequently shuttles products between [them]. The one thing they have the ability to do, plus the data, right now is to analyze to say, ‘What are hotbeds of demand versus lulls?’ … [to figure out how to] flex some inventory in other warehouses to bring inventory where [orders have] spiked heavily.”
Tim Laseter, a professor focusing on retail and operations management at the University of Virginia’s Darden School of Business, said one challenge is that Amazon’s supply chain is built more for single-unit deliveries and not massive quantities, which is in part why we’re seeing the shift in products now.
“It’s designed for 400 million [products], not the 400,000 most important SKUs,” he said.
Weinberg, however, said Amazon’s biggest hurdle will be finding truck drivers to not only move products from manufacturers to warehouses, but also from fulfillment centers to customers.
“Individual resources may not always be available because of quarantine and other issues,” he added.
And that’s why Weinberg said Amazon’s hiring spree—and its ability to procure drivers in particular—will be key to clearing this logjam.
Amazon is also in what Weinberg called a “fortuitous position with significant cash on its balance sheet,” which allows it to make these hires. (Although, to be fair, Walmart is hiring 150,000 of its own temp-to-perm employees through the end of May.)
But, noted Brendan Witcher, a Forrester analyst focused on ecommerce, supply issues are not an Amazon problem—they are a supplier problem.
“Even private label products like batteries are made by somebody else, so you really can’t say Amazon has a shortage. Amazon is just a reseller. … There’s a supply chain issue.”
That, of course, traces back to China’s manufacturing industry, which shut down longer than anticipated earlier this year.
“This is a well-known fact about the supply chain: When you have breakage down the line, it’s not immediately felt at the retailer/consumer level,” Witcher said. “It’s a few weeks further out, which we’re seeing now.”
And the problem is compounded when consumers panic and respond by hoarding.
“Until we turn positive and people feel like in their daily lives we’re coming out of this, there will still be behavior that causes friction in the supply chain,” Witcher said.
He blames the retail industry, which he said “really dropped the ball” by not being more proactive with limits on high-demand products, for example. (National Retail Federation president and CEO Matthew Shay and Retail Industry Leaders Association president Brian Dodge have since issued a joint statement discouraging consumers from buying more than they need for two weeks.)
“We all knew what was coming when the announcement was happening all across the globe—it was naïve to think it wouldn’t hit us,” Witcher added.
That being said, Laseter noted that Amazon has a different effect on the consumer psyche than traditional retail.
“It’s one thing to walk into a grocery store and see shelves empty and customers grabbing Cheerios in a panic,” he said. “You don’t see that on Amazon. You just know it won’t be delivered the next day, but on Monday. And effectively, that’s because their shelves are empty and… you’re getting in a queue with some level of commitment [from the manufacturer to deliver by a certain date].”
That puts Amazon in a better position in the short term, as customers perhaps don’t realize that some of its shelves are empty, too. Regardless, Laseter said as long as factories remain open, stressed retailers should be able to restock even if consumer demand remains high.
Eventually, however, Witcher said consumers will stop stocking up on household staples because they will have “all this pent-up supply” at home. (Although he also said we could see a secondary run on grocers if lockdowns are implemented on a national level.)
“What we forget is it’s not like they’re… suddenly eating four times more—they’re buying and storing,” Witcher added.
Longer term, Weinberg said this is a moment that may permanently change consumer shopping behavior as customers look around and realize what they were able to buy without ever leaving their homes. That, in turn, could spur further ecommerce penetration in categories like sports and outdoor equipment, electronics, and health and beauty.
Laseter, however, was skeptical this will turn out to be online grocery’s big moment as in-store grocery shopping remains the dominant habit in the U.S. While some consumers may be forced to try out online grocery models—which poses an opportunity for players to get in front of new audiences—he noted that old habits die hard.
“If it’s executed well, people may find it works well,” he said. “But they may go back to their old ways.”