Marketplace Pulse CEO Joe Kaziukenas said he doesn’t have an exact figure, but it’s safe to say the majority of Amazon sellers are either based in China or buying goods from there.
But as the coronavirus outbreak continues, manufacturing in China has slowed. The disruption to Amazon customers will likely be minimal—as Eric Kauss, director of marketplace operations at performance marketing agency Tinuiti, said, “There’s always something to buy on the platform.”
However, disruption to its third-party sellers, which CEO Jeff Bezos proudly noted accounted for 58% of Amazon sales in 2018, is already happening.
The Lunar New Year buffer
Eric, a third-party seller who asked to be cited only by his first name over concerns about copycat sellers, noted that the outbreak coincided with factory shutdowns for the Lunar New Year. That means importers had placed larger-than-usual orders beforehand, which should tide them over for a while.
But since then, the government has extended factory closures to March in some areas, and it remains to be seen when China’s manufacturing industry will be up and running at full speed again.
“I would say about one-third of the factories we work with are still closed, and many of the ones that are not closed have told us to expect slower production times,” said Jonathan Weber, a seller focused on products like outdoor equipment and office supplies.
That’s because employees who live near reopened factories were able to return to work, but those from other provinces remain “self-quarantined,” he added.
“It’s been a very difficult moment for a lot of Amazon sellers,” said Deneiro Bartolini, a merchant with products in categories like kitchenware, baby items and mobile accessories.
Combined with tariffs levied by the Trump administration, Weber agreed it is “definitely difficult to source [products] at this time.”
An Amazon spokesperson said it has worked with suppliers to get additional inventory, and provided guidance for sellers. It will continue to monitor developments and take appropriate steps, the spokesperson added.
Waning inventory could be an issue on Prime Day
For his part, Bartolini said he typically plans ahead to ensure he has enough inventory for the break, but “this time the halt has been so long that lots of sellers either ran out of inventory, or they had to raise prices to avoid running out.”
Weber, too, said the housewares he sources from Guangdong province, which is about 600 miles south of the outbreak’s epicenter in Hubei, will go out of stock because he has no alternatives.
“We will probably raise the prices a bit until we run out of stock, and then stay out of stock until the factories are back online,” Weber said. “For complicated products, it just takes too long to remake the supply chain.”
Meanwhile, Amazon is reportedly stocking up on its own first-party inventory. But if it runs out of anything, out-of-stock goods will be a “fantastic opportunity” for third-party sellers, according to Guru Hariharan, CEO of Amazon platform CommerceIQ and former member of Amazon’s inventory planning team.
“Amazon knows there is a safety net of [third-party sellers],” Hariharan said. “For every item that goes out of stock, [a third-party seller] wins the Buy Box and can start to make good money because of out-of-stock issues from Amazon.”
Hariharan said some third-party sellers have raised prices, especially for high-demand products like hand sanitizer, which has in turn seen search frequency increase 10.5x on Amazon month over month. (Wired reports Amazon is telling merchants not to raise prices on face masks to “exorbitant levels” and is deleting listings for overpriced masks, but its efforts to control pricing elsewhere on the platform are unclear.)
Kauss said sellers should be fine if business returns to normal soon, but not if factories aren’t in full production by about March 10. That would impact inventory available in mid-April to mid-May.
That’s when Amazon will be sourcing goods for Prime Day 2020, which could hurt sellers even more if they’re still lacking inventory.
“Amazon will start ordering for Prime Day in six weeks,” Hariharan said. “If a product is not in stock, it will go to a fallback, another distributor or it will cancel [purchase orders].”
Shortages are particularly bad news for smaller sellers who may not have the cash flow to survive until inventory is available again, Kauss said.
“Some vendors just didn’t have enough in the pipeline and won’t be able to get what they need,” he added.
Product development suffers setback
The outbreak may also stifle innovation, at least temporarily.
“We just today canceled plans for adding a new feature to one of our existing products because the factory that makes that component in China is still closed, and the factory that makes the main product in Pakistan told us they may also have issues importing the components from China due to customs quarantine,” Weber said. “So the coronavirus is slowing down pretty much all of our new product development.”
More bad news for developers: The next iteration of the China Import and Export Fair, also known as Canton Fair, is scheduled for April. The popular biannual show claims to be responsible for nearly $1.4 trillion in exports in its 60-year history and, anecdotally at least, sellers say it’s a key event to connect with Chinese manufacturers.
On Feb. 21, Li Xingqian, director general of foreign trade at the Ministry of Commerce, told reporters that “preparations of the 127th Canton Fair are carried out steadily according to plan,” but Weber said he likely will not attend because of both the health risk and the lack of direct flights to China from the U.S. (Kauss, however, said videoconferencing may help alleviate disruptions.)
Business continuity planning
Hariharan said the lesson here, as with tariffs, is that brands and sellers have to think about business continuity plans to avoid a “single choke point,” like factories in China.
“I think the single biggest thing [sellers] have to look at is they have to anticipate that it will be worse than what it is today,” Kauss added. “Right now, the signals are it’s going to be OK, but they have to … protect the most important [products] they sell and figure out how to get inventory.
“The worst thing to do is nothing.”