Amazon Temp Shift to Essential Items for Coronavirus Rocking FBA Sellers

Amazon’s decision to limit new inventory for Fulfillment By Amazon (FBA) to essential items through April 5 due to the coronavirus situation is severely impacting sellers heavily reliant on FBA, perhaps forcing some out of business while others scramble to move product or find fulfillment partners.

In short, it’s bringing into sharp relief the risks sellers run by having an over-reliance on a single channel like FBA.

Priority product categories include baby, health and household, beauty and personal care, grocery, industrial and scientific and pet supplies, Amazon said.

“Unfortunately, far too many sellers are 100% dependent on FBA, and there is no backup,” said James Thomson, a partner at Buy Box Experts. “For a number of them, the reason they became Amazon sellers is they don’t have to handle individual order fulfillment. Amazon made it super easy for companies to focus exclusively on them. They’re in a serious bind and find themselves going to a 3PL or buying boxes and padded envelopes. But for many, they’ll be out of luck.”

Thomson said Amazon has gotten to the point now that it was forced to either increase capacity for Prime orders, or scale back products that are Prime eligible. With its announced plans to hire 100,000 new workers, plus the temporary restriction on non-essential items in FBA, it’s doing both. He said he believes most of the new labor will be thrown at order prep and last-mile delivery.

“It’s not so much a focus on essential products, but those that turn the fastest,” he said. “For instance, apparel is not selling at all right now on Amazon. People stuck at home don’t get a new pair of jeans, they need household goods. So, they’re slowing down demand, allowing them to deliver the Prime promise with the capacity they have.”

Thomson said sellers with halfway decent inventory management have enough inventory stocked in FBA facilities to carry them a good part of the way through the exclusion period.

“They should have 2-3 weeks inventory (in FBA),” he said. “If you’re experiencing higher than expected orders, like in Q4, you anticipate that product will take a couple more days getting into FBA. And you’ve already ramped up to deal with increased demand. It’s likely they’ll run out of stock by April 5 but I fully expect Amazon will start allowing (nonessential products) back into FBA before then.”

Marc Wulfraat, president of supply chain, logistics and distribution consulting firm MWPVL International, said Amazon is facing a manpower shortage not just due to increased demand, but also because many workers don’t want to show up in a crowded FC amid the coronavirus outbreak. To underscore this point, as of Monday at least five Amazon fulfillment center workers in Spain and Italy had contracted COVID-19, according to CNBC.

“In the retail world, (grocers and wholesale clubs) are scaling back on third shifts and closing stores because of manpower shortages,” Wulfraat said. “It’s the same in ecommerce, except instead of closing shifts orders are going to shift. (Amazon is) reducing the types of orders and focusing on essentials. And they’re hiring not just because of a surge in demand. It’s because of people who normally come to work who can’t or don’t want to, with kids home from school or not wanting to be in a crowded warehouse where social distancing is more difficult.”

Wulfraat questioned whether Amazon could meet its goal of hiring 100,000 additional workers, given that it has exhausted the labor pool in markets where its facilities are located.

“In talking to people who worked in HR for Amazon, they’ve already churned through entire labor markets where they have FCs,” he said. “So, they have no labor pool unless they rehire those they fired. The labor situation (for ecommerce fulfillment) was already dire. Even if they offer $17 an hour (the starting wage for new emergency hires), many are in situations of taking care of kids or not wanting to go into a warehouse with 3,000 people.”

Amazon said it planned to hire service workers and others idled by coronavirus-related shutdowns in a blog post announcing the plan.

“We also know many people have been economically impacted as jobs in areas like hospitality, restaurants, and travel are lost or furloughed as part of this crisis,” said Dave Clark, Amazon’s SVP of worldwide operations in the post. “We want those people to know we welcome them on our teams until things return to normal and their past employer is able to bring them back.”

Mike Shapaker, the CMO of ChannelAdvisor, said his company has a mix of sellers who are diversified as well as those heavily dependent on Amazon and FBA.

“Many sellers do have the ability do both FBA and have other arrangements in place,” Shapaker said. “They either have their own facilities or a 3PL they work with. In that case they’ll rely heavily on their own operations or partners. For businesses that are extremely dependent on FBA, there are companies that can help them, but obviously you can’t snap your fingers and make it happen overnight.”

Thomson agreed that a 3PL or even a warehouse-on-demand provider option didn’t make sense for this temporary situation, unless a seller was looking to expand outside FBA on a long-term basis.

“Let’s say I called (the fulfillment partner) yesterday,” he said. “So, we rush and get an agreement. Now it’s my job to send you product, and that could be five days from now. By the time we talk through the specifics of labeling and packaging and prep, it’s another couple of days. If I’m really impressive, I can turn on the machine by March 25, but now I just have until April 5. It’s a pretty short-term fix.”

Thomson said he worked at Amazon during two previous times when it had to dial back FBA inventory, in 2010 and 2012. “We were given this crazy power to allocate who does or doesn’t get space,” he said. “At the end of the day the issue now isn’t space constraint, it’s delivery constraint. As an operations guy it’s fascinating to see, how do you optimize it? The fact that Amazon gave a date of April 5 tells me very specifically they expect that’s what it will take to address the bottleneck.”