COVID-19: Working with Amazon as priorities change

What does this new state of affairs mean for the retail giant in the UK, and beyond?
24 March 2020
Harriet Leach

Senior Digital Commerce Analyst, Consulting Division

james spiers

Principal Consultant, Digital Commerce Practice, Consulting Division

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COVID-19 has had an unprecedented impact on retail globally and will undoubtedly continue to do so in the short-to-medium term. In the UK, as in many countries worldwide, shoppers are increasingly more housebound and looking to digital commerce players to fulfil daily needs for food, medication and entertainment.

Amazon, with its global network and ‘unlimited store’ capabilities is now reaping the rewards of being the ‘everything store’ and a single retail platform where consumers can shop a wide range of categories and solutions. It’s too early to see the uplift data for shopping on Amazon Europe, but reports from the retailer itself tell a sure story of consumer demand; so much so it is now seeking to prioritise certain categories for purchase.

Amazon has a huge range of grocery solutions including Fresh, Pantry and Prime Now serving a multitude of shopper missions. Some of the top performing categories for Amazon grocery are home cupboard essentials, snacks, alcohol and cleaning products.

Alongside this, the retail giant released a statement saying it plans to hire 100,000 new full and part-time employees across its fulfilment centres and delivery networks to meet the spike in demand driven by COVID-19 panic buying. Amazon also revealed it would invest over USD350 million to increase pay for employees involved in the supply chain and those making home deliveries.

Amazon’s response

On 17 March, Amazon announced it would be restricting inbound shipments into its fulfilment centres in a direct response to the outbreak. As sales of household items and medical supplies spike, Amazon has contacted selling partners directly to help manage supply chains and prioritise goods for over-stretched warehouses.

In an email on 15 March, Amazon asked sellers of non-essential categories that would usually use the Fulfilled By Amazon (FBA) business model, to instead use alternative shipping options. The new policy, covering the US, Europe and UK, will remain in place until  5 April, and covers non-essential items such as fashion items, gadgets and accessories and furniture, which will no longer be accepted at Fulfilment Centres. Suppliers have instead been urged to find alternative arrangements for warehousing and shipping provisions.

Categories now considered high priority by Amazon include baby products, pet food, disinfecting wipes, medical supplies and various household goods, including personal care and groceries. Amazon said in a statement it is prioritising these categories in order to “quickly receive, restock, and ship these products to customers”. It added that “we understand this is a change for our selling partners and appreciate their understanding as we temporarily prioritise these products for customers.”

Fulfilment by Amazon

From today until 5 April* only products Amazon determines to be essential will be accepted into Amazon’s Fulfilment Centres (FCs) (existing stock can continue to be sold as usual). These changes impact both Vendors, and Fulfilled By Amazon (FBA) sellers, commonly known as 2P, who use Amazon FCs to hold stock and fulfil shopper orders.

This poses a problem for brands with products not considered essential by Amazon. At a time of increasing online shopping it is more important than ever to have products available on-site for shoppers to browse and purchase.

*5 April date may change as the situation continues to evolve

So, what should brand suppliers do about it?

Ultimately it boils down to reviewing Route to Consumer options. With Amazon’s inbound supply chain limited, the obvious next step is to review alternative solutions to maintain online availability and continue fulfilling orders to shoppers.

One option may be to consider switching to a Merchant Fulfilled Network (MFN) Seller account (in which brands handle fulfilment to the consumer). For those that have not previously ventured into the Amazon marketplace, taking ownership of a seller account can be no small task. Seller Central, product pricing, customer service and customer order management all need to be mastered and that’s forgetting the last-mile delivery solutions that need to be implemented. However, getting it right during the current uplift in online demand could pay dividends.

Alternatively, some vendors may be able to maintain their Vendor Central business despite the recent restrictions. For example, onboarding onto existing Amazon programmes can allow vendors to bypass Amazon FCs and ship directly to customers.

However, before diving into either option it is important to consider:

  1. What are the key logistical differences between each fulfilment model (both in terms of supply chain and account management)? And can each be achieved quickly, successfully, and in a way that makes the business case financially viable?
  2. What are the downstream impacts on the wider channel and on relationships with existing distribution partners?
  3. Amazon will want to return to business as usual, so suppliers need to be agile enough to make the necessary changes reversible, should they wish to do so. Is that going to be possible?

Whichever approach is chosen, these questions each need to be answered before any action is taken.

Kantar’s Point of View:

  • Amazon always prioritises shopper experience. One could argue the shift in strategy is an example of Amazon being consumer-centric. Others more sceptical might present a case for Amazon rallying behind an opportunity to sell products that would not be as frequently purchased. Either way, Amazon’s ability to be agile in this way proves that it is once again both rewarding and challenging to work with as a retail partner.
  • Shoppers are looking to digital fulfilment during this time of uncertainty, for products and services. Prioritising these categories is key to more than retail sustainability, but also household health and happiness. But there is a cost. Those suppliers who do not fit into the crisis categories are equally looking to Amazon to provide a digital platform for goods that they are currently unable to meet.
  • Businesses need to respond quickly to consumer demand. Amazon will be looking into new ways to manage disruption and demand, and brand suppliers will be expected to be agile and responsive. Temporary range reviews to delist the long tail may be a relief to inventory management, especially given volatility in other channels. Now more than ever proves the need for brands and businesses to engage in agile supply chains and ways of working. Sales, marketing and supply chain operations need to work together to find quick solutions catered to the needs of consumers.
  • Amazon will be following shifts: Both Amazon and grocery suppliers will be closely following the shifts in shopper behaviour under self-isolation and social distancing as the new lifestyle becomes a temporary norm for the coming weeks and perhaps even longer.
  • Prime will be key to delivering valuable services: Amazon will continue to deliver additional benefits and better service levels to Prime members to maintain its loyal member base. Prime’s fulfilment promise will be put to test, especially for 1-hour delivery of emergency items, whether hygiene products or OTC drugs.
  • For non-priority categories: There will be a race to redirect some of the planned inventory to either other online platforms, or to other channels. There will be a need for short-medium-long-term scenario planning to assess the impact of Amazon’s current decision. However, assuming that Amazon will be doing its best to go back to business as usual as soon as possible, drastic inventory redirection may result in more disruption than benefit.
  • Brands should expect similar measures in other markets and channels, too: As the situation develops across the world, other markets, not only in the US and UK, will come under review. Category prioritisation will be under review by Amazon, which may be relaxed or even become stricter over time as the situation develops, and other channels and retailers are likely to follow suit as demand shifts.

The Digital Commerce Practice of Kantar offers senior-level strategic guidance through scenario planning and management consulting. If you would like to learn more about how to work with Amazon or new ways to strategize during the COVID-19 outbreak, reach out to our team to understand our practice capabilities.

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