Andrew Pyle discusses Amazon
Amazon.com Inc. sellers are bracing for a bleak holiday shopping season as inflation-bitten consumers curb their spending.
Many merchants, who sell more than half of the goods on Amazon’s web store, fear they’ll be forced to cut prices to move a mountain of unsold inventory. It’s an abrupt change from the previous two years when sellers scrambled to get enough products into Amazon warehouses to meet pandemic-fueled demand even as chronic shortages let them jack up prices.
This year US online sales will rise just 9.4 per cent to US$1 trillion, the first time growth has slipped into the single digits, according to Insider Intelligence, which in June lowered its earlier annual forecast. Spending on Amazon will hit US$400 billion, up 9 per cent and slower than the overall industry, the research firm says.
“Consumers don’t seem to be spending much on anything beyond basic necessities, so sellers have to offer discounts and coupons and aggressive marketing, which can be expensive,” said Lesley Hensell, a co-founder of Riverbend Consulting, which advises Amazon sellers. “The fourth quarter looks scary this year.”
The challenging holiday shopping season was Topic A this week at the Surge Summit, an e-commerce networking event hosted by Hensell’s firm that drew about 300 sellers to Tampa, Florida. During a session called “Navigating the Bear Market as a Seller,” dozens of merchants discussed the abrupt shift in consumer behavior and how to adjust their businesses accordingly.
Korion Morris, who ran the bear-market session, is the director of growth at Unybrands, which owns e-commerce companies in such categories as baby, fitness and personal care. He told attendees that Unybrands is trying to hold the line on prices by cutting logistical and other costs.
“Consumers are hurting right now,” Morris said during the event. “In the rare instances we do increase pricing, we’ll add a promotion to offset it.”
Amazon itself is being forced to adjust to the new new normal. The world’s largest e-commerce company was saddled with too many warehouses and workers when the pandemic boom ended. Amazon has since abandoned dozens of existing and planned facilities around the US, according to MWPVL International Inc., a closely watched research firm. Some of the closings are related to a modernization program, an Amazon spokesperson said last week, and the company continues to open facilities where customer demand requires extra capacity.
Responding to merchants’ concerns about a lackluster holiday shopping season, an Amazon spokesperson said sellers using the company’s logistics service typically pay less than other methods. Amazon has also expanded a program offering low shipping costs on inexpensive items to include products weighing up to three pounds; previously the limit was 12 ounces.
“Sellers are incredibly important to Amazon, and we work every day to provide them with powerful tools and services that help reduce their operational burdens, build their brands and connect them with customers so they can rapidly grow their businesses through busy shopping periods and beyond,” spokesperson Patrick Graham said in an emailed statement.
Meanwhile, merchants are making their own moves to cut shipping costs. Marlee Rabin of Montreal launched her organization brand Homie Collection on Amazon two years ago and her best seller was a US$25 transparent plastic pantry bin. She’s preparing to launch a smaller kitchen organizer this year that she expects to sell for less than US$10. Besides targeting cost-conscious shoppers, she says, the smaller, lighter bin will save her a bundle on Amazon storage and shipping fees.
“I’d love to charge premium prices,” she said. “But in this environment I think I’ll do a lot better at the lower price point.”
The effects are rippling from sellers to firms that support them, including small business lenders. Amazon merchants commonly borrow about US$100,000 to buy inventory and pay for marketing campaigns during the holidays, paying the loans off with their proceeds. Seth Broman, chief revenue officer of Swiftline, which offers loans to online merchants, is turning down more loan applications this year. Rising costs and slower growth has simply made lending sellers money too risky, he said.
“A lot of customers are over-leveraged, and their sales are off,” Broman said.
Even the smallest merchants are feeling the pinch. Nancy Philips sells used books on Amazon that she snags at yard sales and library clearance sales. She’s slashing prices on about 100 books that have been lingering in Amazon warehouses for about a year before her storage fees go up. Amazon increases storage fees on products that don’t sell quickly to prevent its warehouses from getting cluttered.
“Books I’d sell for US$20 I marked down to US$10 or less,” she said. “Amazon fees are about US$8, so I won’t make any money. I need to get rid of them, and people are buying less.”
Steven Pope, who has been selling gifts on Amazon for seven years, says he’s never been more nervous about a holiday season. Sales of his US$50 “mom box” that includes a bath bomb, soaps and lotion, plunged more than 50 per cent this Mother’s Day compared to 2021. He fears a similar drop heading into Christmas since shoppers are focused on necessities like food and gas and have less money for indulgences.
“The gift-giving industry has completely collapsed,” said Atlanta-based Pope, who is developing new snack products to compensate for slowing gift sales.
Pope, who also provides consulting services to more than 300 merchants, recently changed his marketing slogan to reflect leaner times. Before it was “We grow sales.” Now it’s “We deliver peace of mind.”
“It’s very difficult to navigate the climate right now,” he said. “This will be a make or break year for a lot of businesses.”