It’s been a bit of a roller coaster ride for all of us over the last few weeks. In March, Amazon Sellers were told that Amazon would “temporarily prioritize” household staples, medical supplies and other essential product categories in response to a surge in demand following the COVID-19 outbreak.
Sellers using the Fulfilled by Amazon (FBA) service saw inbound shipments for many of their products suspended. Even if they had products already in Amazon’s warehouses, these were being offered with delivery dates a month into the future.
For those selling essential items and with plenty of inventory, it was a boom time — although not without its challenges. The huge spike in traffic (up to 20 times in some cases) caused Sellers of products like medical supplies and household staples to run out of stock. For everyone else, it was, and still is, a difficult time.
Back on track?
Fortunately, Amazon appears to be now getting back on track. As of April 13th, Amazon FBA reopened for some “non-essential” products and merchants will start to be invited to recommence shipments. Some reports say delivery dates are also now coming down to around five days.
Given the upheaval caused, there are some fundamental issues to think about — mostly about short-term survival. However, it is also a good time for Amazon Sellers to consider the nature of their relationship with Amazon. FBA vs FBM has never been such a controversial talking point. In such times, it is helpful to go back to basics.
With that in mind, what are the top things you need to be thinking about right now when it comes to Amazon and your future in ecommerce?
1. Maintaining inventory and supply chain access
If you run out of inventory, everything else you are doing will be for naught. In the current situation, supply chains have been pushed to the limit and keeping products in stock and able to be fulfilled is a competitive advantage in and of itself.
Are you using sea or air freight channels? Air is quicker but more expensive — but speed can be critical if looking to re-supply following an outage. Ultimately, you need visibility over your stock. You need the ability to predict where your weak points are in order to align other elements of your business with those critical realities.
For a short time, Prime has lost a lot of its value and FBA is unreliable at best. FBM listings are often being delivered far faster than FBA, especially as Amazon has focused on essentials.
You need to consider the time and cost of setting up your own fulfillment versus waiting for Amazon’s fulfillment capabilities to normalize. And, if we are likely to have a second lockdown at some point, you can expect more of the same.
What you need to do
Investigate dual fulfillment
Seriously consider switching to FBM (Fulfillment by Merchant). This isn’t right for everyone, and there was never a perfect formula for FBA vs FBM. Revisit Amazon’s own calculator and other web-based tools with various additional features. These will give you a benchmark to start your assessment.
You also might want to investigate fulfillment-as-a-service solutions, for example, Bezo.ai (no relation) or Adstral Fulfilment. Again, not the right option for everyone, but offers a simple way to diversify your logistics.
Follow regional positions
Chinese manufacturers, which supply many Amazon FBA Sellers, were closed for seven to eight weeks starting in mid-January. We are now seeing some disruption across most supply chains, with slow or closed manufacturing plants and strain on last-mile delivery logistics and resources.
Look for cracks in your process
It is worth seeing how you can build resilience into your fulfillment operations so business can continue — reducing dependence on your single point of failure. That might be FBA, or it might be somewhere else in your supply chain.
Consider putting wider diversification on your roadmap. While these weeks have been trying, and more challenges lie ahead, it may help looking to the positives.
Make sure your supply chain is working
Coronavirus has caused work stoppages and supply chain lockdowns for many sellers, especially if suppliers are in China. Now is also time to consider some sort of centralizing and automated inventory tracking through more sophisticated software, for a real-time overview of how your business is doing.
2. Guarding your cash flow
Depending on your specifics, maintaining cash flows might actually deserve to be first on this list. However, we have put it at number two because some brands won’t be worried about this at all. Larger retailers that sell on multiple channels just aren’t under the same kind of pressure that smaller brands face. However, obviously, maintaining cash flow is critical to maintaining your operation. Whether you are seeing more demand than usual or running out of stock, you need to have cash on hand to run the business.
What you need to do
Get sources of funds to shore up the business
Make sure you are using all support mechanisms. Check out access to other financing options through government schemes, banks or Amazon's lending service.
Double-down on winner
You should look at your portfolio and double-down on the highest margin, most in-demand and lowest competition products. These will give you quick wins that can help you stabilize your business.
Increase your prices
You can raise your prices to some degree. But if you raise them too much, you won’t win the Buy Box. Worst case scenario, Amazon suspends your account for price gouging. But you can reduce your bids on low-stock items. Be careful, but push the boundaries if your business is on the line.
Turn off your advertising — or some of your advertising
If you are really suffering from cash flow problems, you can suspend your advertising campaigns. However, this is a double-edged sword. Unless your products have very strong organic rankings, it will likely cause a drop in conversion. You need to be careful. We will cover this in more detail later on.
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3. Monitoring customers behavior and keeping your workforce safe
We have seen completely changed patterns of consumer behavior all over the world. When people are afraid, they go into survival mode. The question is: are there new patterns emerging and how long will they last? To start with, essentials like toilet paper and sanitizers were routinely selling out. Now we see things like home gym equipment, hair clippers and puzzles trending according to Amazon Brand Analytics data.
You also have to note that, unlike other recent global crises, this could be less of a ‘one-time’ sharp shock to the system, and more of a rolling source of unease that could retreat and resurface repeatedly.
Money too tight to mention
Record numbers are applying for unemployment benefits. Disposable income will be severely restricted and buying behavior will change accordingly. There will be more retailers chasing fewer customers for some time to come. Charles Ballard, from Michigan State University, estimated it could take two years or more for consumers to return to full confidence.
What you need to do
For your people
- Employees need to carry on basic hygiene precautions, and avoid all non-essential travel and social contact.
- If you’ve shifted your workforce to home working, make sure you keep in touch and look out for their wellbeing as it can be an isolating experience.
- Encourage one-to-ones with people and set up virtual team meetings.
For your customers
Learn from the last ‘new normal’
History provides evidence that brands can grow in distressing times. McKinsey research regarding the 2008/2009 crisis correlates larger contemporary marketing investments with long-term resilience that translated into revenue and market share growth. Whenever there is change, there is opportunity to re-align with market trends and consumer demands.
There is no doubt that social distancing will accelerate the growth of ecommerce as a percentage of retail sales. Making sure you have the tools in place to understand Amazon customer data, analytics, purchasing patterns and more will be critical to your long-term success.
Look for emerging patterns of purchasing
Find out who your customers really are. Not just demographics, but what, where and how they use or consume your brand and the category in which you are competing. And especially the ‘why’ of their attitudes and behaviors. Particularly in the current circumstances, this will be critical to making sure you make the right supply chain decisions and can continue to match customer expectations.
The specifics of your business will be unique. But some short-term general trends caused by COVID-19 worth thinking about are:
- Bulk buying
- Just in case purchases
- New types of customers buying your products
This may lend itself to short-term tactics like bundling or the use of coupons for cross-selling. For more detail, check out our article ‘How social distancing has impacted Amazon buying patterns’.
4. Optimizing and reviewing your listings
This is a good time to focus on the make-up of your product portfolio and your overall message. Increased competition and changes in buyers’ attitudes and behavior mean you should be laser-focused on what products you offer and how you communicate them to potential buyers.
What you need to do
Look to modify range
With non-essential goods being restricted from FBA, it could be the perfect opportunity to bring in essential goods if you have access to them. It might be worthwhile to invest in sourcing them because there's no certainty that this restriction will end as planned.
However, you need to be careful regarding the goods you source. Amazon has increased the vetting criteria for essential goods. Sellers should also check to see if they have eligibility to sell essential goods before committing to an order. There are even instances of Sellers that have all the documentation required to get approved and still get denied by Amazon. Proceed with caution.
Follow the rules and audit listing
As Amazon is closely monitoring its marketplace for any dubious activity, it’s more important than ever to be compliant with its rules. Amazon recently said it took down 1 million products over false claims around coronavirus.
- Ensure you have no false information or wrong search terms around coronavirus. Having such information could lead to immediate removal of your products and will require wasted time and resources to get reinstated.
More people are shopping online. With the right content, you can better engage with customers and grow sales.
- Think beyond product descriptions. For example, live videos on Amazon. This can help build a community for your brand and potentially expand your customer base.
5. Rebuilding your PPC campaigns
During uncertainty advertising spend will always be a target for cost cutting. Sellers are cutting back spending on ads and pay-per-click campaigns. It is critical to be smarter about your ad budget. Look to spread it out based on demand and inventory levels. For example, if you’re running low or out of stock on certain products, it's better to reallocate ad spend to products that will be in stock. If demand for certain products has dropped off, consider cutting them for your PPC priorities.
With that said, increased focus on ecommerce caused by social distancing will mean increased competition in the long run. The marketing is likely going to get more expensive — meaning those with access to cash will have a huge advantage.
What you need to do
Review your budget
- Use your cash flow projections and put budget caps on at account and portfolio level.
- Reduce bids on low stock items.
- If budgets are really tight, look to scale back/get rid of research campaigns and ad units that are higher up the funnel (sponsored brands for instance). Essentially, the focus should be on the other areas of your business for now.
- Stop experimentation — be ruthless on non-essential/non-core activities.
Check search term reports daily
Volatility means monitoring on a day-to-day basis.
- For the non-essential product, focus on high converting search terms.
- Focus on high converting keywords/search terms for non-essential goods to improve ROAS/ACoS.
- Search activity is volatile, and you could end up spending on non-returning or spurious search terms.
Look at opportunities in Cost-per-click
Bid prices will be more unpredictable. With less money spent by others, campaigns may cost less and you can reap bigger returns and increase your sales.
Watch what competition is doing
- Your competition may be subject to stock-outs. Look to take advantage if you are in a stronger position. If a competitor has run out of stock, CPCs can decrease.
- Look at competitor lead times. If you notice that you can consistently deliver products faster than your competitors, this presents a great opportunity for targeted ads.
Analyze the changing situation
Even days of data will be useful in these changing times. Amazon is constantly moving the goalposts and being able to react to those changes quickly will give you a massive advantage.
This might be the new normal
There is no denying the unprecedented nature of the current situation. Everyone is looking for an eventual return to ‘normal’. But we should all get used to the fact that it’s never going to be exactly the same again.
Even if lockdowns ended tomorrow, shifts are underway in how society, business and the economy operate. Luckily for you, ecommerce is likely to be a long-term winner from these changes. Global supply chains and inventory/fulfillment management are the two sticking points that may cause continual problems in the future.
Amazon’s initial reactions to the crisis undoubtably hurt third-party sellers. Having effectively quarantined stock and cut off their income, will sellers forgive and forget? Should retailers strategically move away from FBA to shore up control over their orders?
There are no clear answers here. What is clear is that change in headed our way. There will likely be things that you can’t anticipate. Flexibility is key to weathering this storm.
What we have covered here are really the immediate concerns that Sellers need to address. But you should also consider how your business and Amazon operation fit in with the new economy after COVID-19. Things might not go back to exactly the way they were, but business will carry on and the ‘crisis’ will end.