A Blog by Jonathan Low


Apr 14, 2020

Will People Really Be More Dependent On Amazon When This Is Over?

It just announced it is hiring another 75,000 workers on top of the 100,000 it hired two weeks ago - though how many of the 75K are replacing some of the 100K who've since gotten sick or are too scared to show up due to the company's indifference to protecting its workers Amazon isn't saying. 

But as the western world has learned about China, it's dangerous to become too dependent on any one nation - or company. JL

Christopher Mims reports in the Wall Street Journal:

Amazon’s market share might (rise) provided it can figure out a way to meet demand. For Amazon, a company that may already be too big for its own good, it could lead to more of the regulatory scrutiny that its success was drawing even before coronavirus. In coming years, the regulators will be back, and in greater numbers. As will the labor organizers, politicians and activists. An ever greater variety of customers will view Amazon as a basic utility but, wary of overreliance, will explore alternatives, too.
It’s by now something like accepted wisdom that Amazon. AMZN 6.17% com Inc. could be one of the few firms to come out ahead in the wake of the coronavirus pandemic. But all is far from well in the kingdom of Bezos. At a defining moment for the company, it is letting customers down.
True, all retailers are under enormous strain, and the Amazon boxes keep arriving. But the promise to ship anything to our doorstep in a day or two that has gained it the trust of an astonishing 112 million Prime members in the U.S. (a nation of 129 million households) has evaporated nearly overnight.
Weeks into America’s national experiment in only going to the store when absolutely necessary, it feels like Amazon is little better than any other retailer at getting us what we need, when we need it.
Every part of the company’s sprawling empire—from its eponymous e-commerce operation and its considerable physical retail to its market-dominating cloud services—is being tested. The fact that Amazon’s retail operations are functioning at all is a testament to the flexibility of the company’s infrastructure during a health crisis that few if any companies were prepared for.
But the crisis is laying bare the cracks in Amazon’s ability to be there for its customers when they need it most, much less to “delight” them, as Chief Executive Jeff Bezos once urged his employees to do. Those cracks include times when up to half the workers in some of the company’s facilities haven’t shown up, with some saying it was due to their fear they wouldn’t be adequately protected from coronavirus. It’s also due to Amazon’s just-in-time supply chain, reliance on third-party sellers and largely automated systems of buying and selling that were never designed to handle such a crisis.

The Amazon boxes keep coming but the company’s Prime promise of delivery in one or two days has evaporated during the pandemic.

When parrying claims that it’s a monopolist, Amazon often cites the statistic that e-commerce is only 16% of all retail. With stores closed and delivery the only safe option for many vulnerable people, it’s clear that proportion will spike in the coming months. Reports from employees and analysts indicate volumes in Amazon’s warehouses are on par with seasonal surges around the holidays. Market-research firm CommerceIQ reported sales of toilet paper are up 186%, while cough and cold medicine sales are up 862%.
While demand for those products remains high, Amazon shoppers are unable to get many of the essential products the company says it’s prioritizing now. My search for toilet paper on Amazon yielded a jumbo 700-foot roll of commercial toilet paper in the first slot. In the second? A baffling block of text in lieu of a product image, stating that customers ordering this product after April 6 won’t receive it, so they shouldn’t bother. And everything considered nonessential takes more time than the two days Amazon conditioned us to expect.
“We continue to focus on receiving and shipping high priority products that customers need at this time,” said an Amazon spokeswoman. “Although we have more limited capacity due to the extensive health and safety measures we are taking across the network, we have begun selectively bringing more products from our selling partners into our fulfillment centers,” she added.
A recent poll conducted by RBC Capital Markets found that as of March, 55% of Americans polled had ordered groceries online, compared with 36% two years ago. One-third of respondents said the first time they had ever ordered groceries online was in the past 30 days, and 60% of respondents used Amazon to order groceries. As a result of the sudden onslaught, ordering groceries from any online grocer, including Amazon or its subsidiary Whole Foods, has become an exercise in trying to nab scarce slots for delivery, comparable to attempting to get tickets to a sold-out concert.
“Similar to peak times of year, like the holidays and Amazon Prime Day, we are applying those same operational processes now to meet the significant increase in customer demand,” said the Amazon spokeswoman.
The infrastructure Amazon built pushed the entire e-commerce industry toward ever broader selection delivered ever faster.

Amazon trucks on Staten Island in New York City on March 30.

In the mid-2010s, Amazon initiated a program called “hands off the wheel,” which replaced many of the functions of Amazon’s white-collar retail workers—those responsible for managing inventory and negotiating with sellers—with AI and automated systems, says Alex Kantrowitz, who wrote the book “Always Day One,” about Amazon’s management strategies.
This means Amazon’s systems respond more quickly to increases in demand than humans could, but it also leads to breakdowns when they encounter unexpected shocks—e.g., a global pandemic. In this case, when products became suddenly scarce, price gouging naturally occurred. Amazon stepped in and eliminated many sellers, but by that point there were hardly any Charmin rolls, Purell bottles and Clorox wipes left to sell.
Just as we don’t know how long it will take America to return to normal, it’s not clear when Amazon will, either. For sellers on Amazon’s marketplace, which comprises the majority of its online sales, it generally takes more than two months from an order being sent to China to those goods being available on Amazon. That’s under normal circumstances.
At retailers of every sort, items like disinfectants and shelf-stable foods have gone out of stock, says Michelle Evans, global head of digital-consumer research at Euromonitor. In the week ending March 28, Americans spent 47% more on consumer packaged goods purchased online when compared with the same period a year ago, according to Nielsen and Rakuten Intelligence.
As manufacturers struggle to meet demand, no one retailer is able to monopolize supply of critical items, leaving consumers to scramble to find them wherever they might be. Increasingly, that’s not Amazon. The entire point of Amazon’s Prime customer loyalty program was to convince Americans to shop at Amazon first, but after this crisis, it’s possible Americans’ reacquired skill of shopping elsewhere will, like anything repeated often enough, become habit.


How do you think the pandemic will change Amazon and the shopping habits of Americans? Join the conversation below.
For a company that struggles with high turnover at its warehouses, America’s unemployment crisis would seem like a boon, at least at first. As economists project 14.4 million U.S. jobs could be cut in the months ahead, Amazon has hired 80,000 additional workers in just the past few weeks, as part of its pledge to hire 100,000 new permanent workers. It has also raised its base wage from $15 an hour to $17, through April.
But with more workers pouring into Amazon’s facilities, and more forced to stay by the lack of alternatives, there could be more protests by employees and more concessions from historically union-averse management. Already, the company has instituted double pay for overtime, paid leave for associates with confirmed or suspected cases of Covid-19, a tripling of its janitorial staff and audits of its own facilities to comply with these measures.
Amazon has been dogged by years of worker walkouts, labor-practice exposés and reporting that Amazon’s Marketplace has been peddling thousands of banned, unsafe or mislabeled products. Yet its brand still achieved a 91% favorability rating among consumers in a December poll by the Verge. The key to that popularity is trust, says John Rossman, the former Amazon executive who started Amazon’s Marketplace. Consumers felt, in good times anyway, that “I can trust the item, I know it’s a good price, I have transparency on when I’m going to receive it, and if I have issues Amazon will work on my behalf,” he adds.
But will consumers continue trusting Amazon when they still can’t get basics in a timely fashion, and as someone they know goes to work in one of its more than 500 facilities, potentially exposing themselves to the virus?
A big edge Amazon holds over competitors is that it can cover losses or scant retail margins with a combination of good will from investors and a cross-subsidy from its booming cloud business, Amazon Web Services.
AWS was 11% of the company’s revenue in the company’s most recent financial report, but it formed the bulk of Amazon’s operating profit in recent quarters. As more Americans work from home and children stay home from school, name-brand services that run on AWS are seeing surging demand, from enterprise productivity tools to “Fortnite.”
“We have taken measures to prepare, and we are confident we will be able to meet customer demands for capacity in response to Covid-19,” said a spokesman for AWS.
Of all cloud providers, Amazon is the best positioned to benefit both in the long and short term from surging demand, Eric Sheridan, an analyst at UBS, wrote in a Monday note surveying the industry.
The business communication tool Slack, for instance, runs almost entirely on AWS. In the past few months, it’s seen an influx of more than 9,000 new paying customers. That’s almost triple the number of sign-ups the company would normally see in the same period, says Slack Chief Technology Officer Cal Henderson. Overall, customers are sending 20% more messages and using the service for 20% more hours of the day, and the company has seen a 350% increase in the use of voice and video calling features on Slack.
Despite a doubling and tripling in its use of AWS for some services—and Slack’s need to spin up thousands of new servers within minutes to handle some spikes in demand—he says he’s seen no evidence Amazon is running out of capacity in its data centers.
All this increased usage means more revenue for AWS and more profit for its parent company. In turn, that means more opportunity for Amazon to, as Mr. Bezos famously put it, turn its retail competitors’ margins into Amazon’s opportunity.
As demand for its various businesses surges, Amazon’s market share might as well—provided it can figure out a way to meet that demand. For most any company on earth, this would be good news. But for Amazon, a company that may already be too big for its own good, it could lead to more of the regulatory scrutiny that its success was drawing even before coronavirus. Those inquiries haven’t stopped—they are, like much else, just on pause.
In the coming years, the regulators will be back, and in greater numbers. As will the labor organizers, politicians and activists. An ever greater variety of customers will view Amazon as a basic utility but, wary of overreliance, will explore alternatives, too. The bill for Mr. Bezos’ possibly Faustian bargain with the universe—that everyone loves an innovative and ruthless competitor, even when it becomes dominant—may finally come due.


Dulaney said...

Great content, thanks for sharing during these difficult times. fitmc.com

Post a Comment