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Amazons New Essential Items Policy Is Devastating Sellers

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Posted on : March 26, 2020

Bernie Thompson is exactly the kind of entrepreneur Amazon likes to celebrate. In 2009 the former Microsoft developer started his own electronics company, Plugable Technologies. He now employs 35 people in Redmond, Washington, and primarily sells his signature laptop docking stations through Amazon. In 2016, CEO Jeff Bezos highlighted Plugable in a letter to shareholders, noting how Amazon helps small businesses like Thompson’s grow. Plugable’s success story was so emblematic that Amazon featured it in a video advertisement designed to lure new business owners to its platform.

Then the coronavirus hit. Facing overwhelming demand for household essentials like toilet paper and groceries, Amazon announced last week that it would hire an additional 100,000 workers in the US, and would give employees in the US, UK, and Canada a temporary raise of at least $2 through the end of April. It also decided to stop accepting all other items at its warehouses, including those from Plugable, until April 5. In Italy and France, Amazon will deliver only essential items, regardless of what it has in stock.

The change sent Amazon sellers—many already facing other disruptions caused by Covid-19—scrambling to find new ways to get their products to customers. Shipping times have begun lengthening, from as little as 24 hours to weeks or more, contributing to a precipitous decline in sales. “People are not going to want to order items when they won’t ship for a month,” says Thompson.

"We understand the impact that Covid-19 has had on many of our selling partners, and appreciate their understanding as we temporarily prioritize high-priority products so we can more quickly receive, restock, and ship these products to people who need them during this time, particularly the elderly and those who are most vulnerable to being out in public," an Amazon spokesperson said in a statement. The company says it is also relaxing some policies for sellers, including performance metrics based on shipping times.

Small businesses around the world have been forced to close and lay off employees as a result of the coronavirus pandemic. But Amazon sellers are unique in that they rely heavily on the retail giant, whose massive logistics network has been considerably strained by the public health crisis.

For years, Amazon has encouraged millions of third-party merchants to enroll in its Fulfilled by Amazon service, allowing them to offload tasks like storing, packaging, and shipping to the company in exchange for a fee. (An spokesperson says Amazon waived long-term storage fees in April for sellers using FBA.) Around 94 percent of Amazon merchants use FBA for at least some orders, while 64 percent exclusively rely on the service, according to the analytics firm Jungle Scout, which tracks data for Amazon sellers. Now that the program is only open to essential goods, sellers have been forced to seek out alternative means of distribution.

“The consequences to our business from that announcement were tremendous,” says Mendel Jacobson, the CEO of Afula Enterprises, a company that sells over $10 million worth of different products on Amazon annually. “Half our catalog—we can’t send to Amazon, we’re already running into a lot of inventory problems.” Afula has been unable to send even items like garbage bags to Amazon, which it assumed would have qualified as essential.

To cope, Afula has begun trying to fulfill orders on its own, but the company is struggling to find trucks available to pick them from its New York City warehouse, where residents have been ordered to shelter in place to stop the spread of the coronavirus. Mendel has considered putting up flyers in the area, resorting to selling goods to people who live nearby. He worries he might need to lay off some of the 35 people he employs in Brooklyn. “Every hour it’s changing, I don’t think anyone knows what’s coming,” says Mendel. “The unknown is very freaky.”

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Like every seller WIRED spoke to, Mendel says he is sympathetic to Amazon’s decision, and understands that prioritizing necessary supplies was the right thing to do. But Amazon has over 2.5 million active sellers on its platform worldwide, according to the data firm Marketplace Pulse. Together, they accounted for 58 percent of gross merchandise sales on Amazon in 2018. And maybe the most telling statistic: 37 percent of them rely on Amazon as the sole source of their income, according to Jungle Scout.

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The problems sellers currently face also extend beyond shipping. Miles Szczurek, head of operations at the 3D-printing tool manufacturer AMX3d, says his company took out a small business loan with Amazon. Now that it can’t stock products in the company’s warehouses, he’s concerned it will be impossible to pay back. “When Amazon put this restriction in place, they made no adjustments to the terms of the loans,” he says, except to cancel the option to take out more money by refinancing.

"We are working quickly to develop the best ways we can assist our small business lending clients, including repayment relief for existing and prospective borrowers," an Amazon spokesperson said in a statement.

Some sellers, including Thompson, are seeing sales surge on other platforms like Walmart, which is still displaying relatively fast shipping times. But those extra orders have not made up for the lost Amazon revenue. Before the coronavirus hit, Plugable was aggressively trying to hire, says Thompson. It has now closed nearly all of its open positions. The downturn can't be attributed to Amazon's actions alone. As the stock market has crashed and millions have lost their jobs, consumers have spent less discretionary income on items like electronics and clothing.

Even after the coronavirus pandemic passes, merchants are uneasy about whether and how quickly their businesses might be able to recover. “How long will it take post-virus for Amazon to restock the product lines that people came to rely on,” says Szczurek. “I think this points to a significant weakness with a single venue having this much market share.”


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