The holiday shopping season has come early to Amazon this year, with Amazon announcing a 3-week sales event for beauty products in October called Holiday Beauty Haul. The sales event runs October 4-25th. Additionally, Amazon has released Black Friday deals nearly two full months early!
News outlets have focused on Holiday Beauty Haul as an attempt by Amazon to secure more market share within the health and beauty category. While this is certainly true, we see two other key reasons that Amazon launched holiday sales events early:
COVID-19 caused many changes in consumer buying behavior and the Amazon landscape. The second quarter of 2020 saw a massive surge in online sales as the first wave of stay-at-home orders swept the U.S., resulting in record-breaking earnings for Amazon.
Q2 2021 lacked the same tailwinds, which put Amazon at risk of reporting less impressive growth figures year-over-year. So, Amazon moved Prime Day 2021 into Q2. And it worked; they had a strong Q2 earnings.
The problem is, Q3 2020 also had strong earnings, in large part because Prime Day 2020 was delayed until October. So, Amazon now needs to perform a similar maneuver to support 2021 Q3 earnings, and they’ve already played their Prime Day card.
Hence, Amazon launched the Holiday Beauty Haul event and released Black Friday deals early.
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The second likely reason for Amazon to launch promotional events early is to reduce the strain on FBA, which has been struggling to cope with demand since March 2020.
Due to limited FBA space and restrictive storage limits, brands are struggling to have enough inventory available on Amazon to meet demand. If sales surge in one concentrated period, there will be widespread out-of-stocks. If Amazon can spread sales out over time instead, the risk of out-of-stocks diminishes. This is a better experience for consumers and sellers.
That said, there will likely still be out-of-stocks.
With the supply chain issues being a hot topic, let’s dig further into the issues and what brands can do to overcome them.
“Supply chain” is a great word because the very name describes how the system works; it’s a chain, composed of multiple links. If any link fails, the chain breaks. Since the start of the global pandemic, multiple links in the chain have been failing.
Factory shutdowns due to outbreaks or restrictions of the number of workings able to be on shift simultaneously has resulted in delays in material sourcing and manufacturing. This issue spans industries and product categories.
Once a product is made, it must be shipped to a warehouse for storage and fulfillment. Unfortunately, the cost of shipping containers has skyrocketed over 500% comparing prices from July 2021 to July 2020.
You may have seen photos of the Port of Los Angeles with dozens of container ships waiting in the water. The port can handle a huge volume of traffic, but delays further up the supply chain – coupled with sellers preparing for holiday sales spikes – has overwhelmed the port. It now takes 83% longer for a container from China to reach its final destination in the U.S. compared to pre-COVID.
Once products have cleared ports, they still must be transported to a warehouse for storage and eventual fulfillment. For Amazon sellers, this typically means Amazon FBA centers. The trouble is, Amazon has repeatedly restricted inventory limits at FBA centers since the start of the pandemic. In Amazon’s Q2 2021 earnings call, their CFO remarked that FBA has been “playing catch-up pretty much since the pandemic started.” Amazon simply doesn’t have enough warehouse space for all the sellers trying to use it.
Because FBA restrictions are so severe and prolonged, sellers need to invest in alternatives to FBA. These alternatives are often collectively called “Fulfillment by Merchant” (FBM) or a “Merchant Fulfilled Network” (MFN). Sellers must invest additional time and capital to create this infrastructure.
Each of the above issues results in longer delays and higher costs, so brands and consumers alike are eager to see them end. But when will that be?
Unfortunately, we anticipate supply chain issues will persist well into 2022. Every link in the chain needs to be repaired, and that takes time.
We’re firm believers in not obsessing over what should be, but rather, what could be. The distinction is that “should” will always be a perfect state, which is rarely attainable. Focusing on “should” will lead to continual disappointment and frustration. By framing our paradigm around “could,” we acknowledge the current situation and its challenges, and then we do absolutely everything in our power to make the best of it. “Could” is actionable.
So, what can brands do? Let’s take on each of the above challenges in order.
There’s a reason nearly every major brand sources their goods from Asia: These countries, China in particular, have built economies that are very hospitable to manufacturing. But, their distance from the end consumer market is now presenting challenges.
Brands can explore alternative locations for sourcing, such as Central America or even within the US. Admittedly, there will be challenges in sourcing from another country, such as needing to vet the quality, timeliness, and price of a new vendor. Changing your vendors is a big undertaking with far reaching implications, so approach this step with caution.
We have a dedicated blog post about sourcing product internationally for further details.
With transportation costs rising, the most effective way to reduce expenses is to consolidate orders and checkpoints. Two ways to do that for Amazon are through Amazon Global Logistics (AGL) and Amazon’s direct import program. Typically, importing from overseas requires multiple stops and multiple service providers, creating a lengthy and costly chain. AGL streamlines the process, reducing touch points and costs for sellers.
For example, because Kaspien is a third-party seller that works with multiple brands, we’re able to reduce shipping costs by consolidating brands’ international shipments with other brands’ products, reducing costs for all participants.
Because FBA inventory limits are too low, sellers need to find alternatives. These FBA alternatives can include a third-party logistics provider (3PL), such as Deliverr. These 3PLs can serve a dual role of staging ground from which sellers resupply FBA, and as a direct-to-consumer fulfillment solution, where products are shipped directly from a Deliverr warehouse to the end consumer.
If brands have their own warehouses already, they can also utilize dropshipping. Dropshipping is when a seller lists a product for sale without having inventory at FBA. When a customer places an order, the seller buys the product from the manufacturer, who then ships the product directly from their warehouse to the end consumer. Dropshipping requires that the warehouse has an accurate inventory management system that connects in real-time to the seller, otherwise the seller risks selling a product that is not actually available.
Just as you may need to diversify fulfillment, you may need to diversify your sales channels. Amazon holds the lion’s share of online sales in the U.S., and most brands cannot afford to ignore it. But, shoppers also browse other platforms, including Walmart, Target, eBay, and direct websites.
Marketplace Pulse notes that in the Venn diagram of brands selling on Amazon and brands selling through Shopify, the overlap is growing. Just as with brick & mortars, ecommerce is steadily moving towards an omnichannel approach, where brands sell through multiple retailers and their own stores.
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