Amazon, with Demand Surging, Transitions FBA

Amazon is experiencing a dilemma that other ecommerce companies wish they had: a demand that exceeds supply chain infrastructure. In a note in mid-July, Amazon told sellers using Fulfillment by Amazon that with the peak sales season coming, the company would restrict warehouse space starting August 16 based on inventory productivity.

FBA is transitioning from a storage and fulfillment service to just a fulfillment one. In the future, storing inventory in FBA for more than a month incurs additional fees. FBA is now designated as a just-in-time supply to enable Prime shipping. This change is problematic for third-party sellers who now need an inventory storage alternative.

Amazon has announced plans to build new warehouses, but they will not be ready for the holiday season. Just last week Amazon announced new fulfillment centers in El Paso, Texas, and Mt. Juliet, Tennessee, that will open in 2021.

Amazon is slowly restoring its logistics operations to normal after it was deluged with orders for masks, hand sanitizer, and disinfectant at the beginning of the pandemic, resulting in delivery delays and inventory shortages. Warehouse operations have since stabilized, but a big spike in orders could again strain its inventory and shipping operations. Amazon is therefore skittish about holding its 2020 Prime Day extravaganza, which was scheduled for July 15 and 16.

Prime Day

Amazon says it will postpone Prime Day indefinitely after initially delaying the event until September. The company subsequently told sellers to mark the week of October 5, although that was meant as a placeholder and not a commitment. If Prime Day is delayed past October 5, it could cannibalize Black Friday and Cyber Monday sales. With the economy not expected to recover by November, shoppers will likely not participate heavily in both Prime Day and November holiday shopping.

Marketplace Sellers

Marketplace sellers are increasingly integral to Amazon’s revenue. From 2009 to 2019, third-party sales grew from 30 percent of total sales on Amazon to 60 percent. The company receives a huge amount of revenue from the service fees it charges Marketplace sellers.

Nevertheless, Amazon’s treatment of third-party sellers is often criticized. Sellers have allegedly been suspended or removed for dubious reasons. Additionally, Amazon has reportedly used third-party sellers’ proprietary information to develop competitive, Amazon-branded products.

According to Marketplace Pulse, a research firm, out of 8 million global Marketplace sellers, only 3 million are active — i.e., have products listed for sale. Roughly 2.7 million sellers reside in the U.S. and 1.1 million are active.

The U.S. Marketplace is growing the slowest in terms of active sellers at just 5 percent, despite an additional 250,000 American sellers who joined in 2019.

In its recently released 2020 small business impact report, Amazon states, “Since the pandemic hit, third-party sellers have had record sales. Their products continue to account for more than 50% of all units sold in our online stores, and their sales continue to outpace our first-party sales.”

In the 12 months ended May 31, Amazon’s marketplace sellers averaged $160,000 in annual sales, compared with $100,000 in the same period a year prior, Amazon reports. Additionally, more than 450,000 sellers worldwide used FBA in the year ended May 31. Marketplace sales continue to outpace first-party sales — i.e., inventory owned by Amazon, including its private-label goods.

American Marketplace sellers sold more than 3.4 billion products in the year ended May 31, an increase of 25.9 percent from the prior year, and averaged 6,500 products sold per minute. The number of American Marketplace sellers that surpassed $1 million in sales grew by more than 20 percent during the same timeframe — 3,700 sellers passed $1 million in sales for the first time.

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Fighting Counterfeiters

In late June, Amazon announced a new Counterfeit Crimes Unit. The company states that in 2019 it blocked more than 6 billion suspected harmful listings and took down 2.5 million potential counterfeit accounts.

Moreover, Amazon recently announced that as of September 1 it would require American third-party sellers to disclose their business name and address in their public profiles. The company already requires its European, Japanese, and Mexican marketplace sellers to share this information.