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Will Covid End in 2022? Effects on Amazon Two Years In

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Will COVID-19 end in 2022? It’s hard to believe two years have passed since the pandemic first made landfall, yet the economic impacts of COVID-19 are just as visible as ever. In March 2020, Amazon’s vast Fulfillment by Amazon (FBA) network succumbed to the unstoppable forces of the pandemic’s unpredictability when Amazon announced it would no longer accept inventory from certain categories into fulfillment centers.  

The measure was enacted to free space and capacity for personal protective equipment (PPE items, such as face masks) and other high-priority items in the nascent supply chain problems already visible just weeks into the pandemic. Several industries impacted by COVID saw drastic fluctuations in sales and inventory, though many were able to overcome these challenges and adapt. We even created a podcast on the topic, How to Create a Nimble and Resilient Fulfillment Strategy. 

Almost exactly two years later, uncertainty is still a major narrative for Amazon sellers. As an e-commerce company serving numerous FBA sellers, Kaspien has witnessed the peaks and valleys of this pandemic firsthand and the negative impact of COVID-19 on e-commerce. Twenty-four months in, it appears Amazon has yet to completely return to what we’d like to call “normal.” Some aspects of it never will.  

Consumer Behavior 

Even as the pandemic continues to wax and wane, it’s clear some of the changes in consumer spending habits during covid are here to stay.  

It’s no secret that the pandemic drove shoppers to buy online in greater numbers than ever before. In 2020, Amazon experienced an 87% traffic surge that lasted into the early months of 2021, according to Sellzone. Many assumed this spike marked a permanent leap forward in e-commerce’s share of US retail sales.  

The latter part of last year proved this was not the case. As the immediate economic impacts of COVID-19 stabilized, e-commerce sales levelled out, returning largely to pre-pandemic trajectories and proving that the COVID-19 super surge was only temporary.  

With that said, the pandemic has made some lasting impacts on consumer shopping behavior. According to our State of Amazon: 2022 Report: 

  • Shoppers have more focused intent. To illustrate this, pages viewed per visit is down year over year, indicating that customers are coming to Amazon for fewer products than they did in 2020.  
  • Desktop traffic is on the rise. Stemming from the work-from-home movement, desktop has usage understandably increased. At 54% in 2021, desktop visitors are beginning to dominate the Amazon platform.  
  • Referral traffic is flourishing. This can be traced back to Amazon’s Attribution Program, designed to encourage sellers to bring more external traffic to the marketplace. Those efforts are paying off, especially as direct traffic continues to wane.  

  

Amazon Marketing and Advertising 

Along with higher consumer spending, COVID ushered in significant changes for marketing on Amazon since March 2020. Costs temporarily fell when sellers pulled back on ad spend due to supply chain troubles sharply affecting the amount of inventory to promote.   

Since then, Amazon has added more brand-focused features to the platform, increasing overall visibility for Amazon Posts and Brand Stores. One new feature is the Brand Referral Bonus Program. These updates reflect an important shift as shoppers and sellers promote more direct engagement with brands, a trend clearly reflected in Shopify’s rapid growth since the start of the pandemic. 

In late 2021, Amazon made another momentous change in its advertising options, transferring several features of the cost-prohibitive Demand-Service Platform (DSP) to the much more accessible Sponsored Display Ads self-service format. This game-changing update has unlocked powerful DSP tools to target and recapture customers and gather helpful data on the up-and-coming metric of Now-to-Brand (NTB) sales. The array of enhancements and additions to Amazon is exciting in many ways, but costs are also rising. According to Kaspien’s data, cost per click (CPC) rose 26% year over year.  

The Global Supply Chain 

The supply chain problems COVID caused have become inextricably linked to e-commerce for the last two years. Amazon sellers first felt the brunt of the impact with the aforementioned FBA restrictions in March 2020. As we search for an answer to the ‘will COVID end in 2022’ question, we can look where FBA and the broader e-commerce supply chain stands today.  

On a positive note, it appears the FBA program is finally on the road to recovery. Amazon lowered the Inventory Performance Index (IPI) threshold in January 2022, meaning fewer sellers face inventory limits. Unfortunately, Amazon Quantity Limits (AQL) are still in place, so things aren’t totally fixed.  

In addition, Amazon renewed long-term storage (LTS) fees this year, which had been on pause throughout the pandemic. As a result, sellers have another fee eroding their margins 

As outlined in Kaspien’s and Sellzone’s collaborative 2022 State of Amazon report, expect supply chain issues to persist well into this year. As mentioned several times on our blog, Kaspien believes sellers should continue diversifying their fulfillment methods by investing in dropshipping, third-party logistics providers (3PLs), and/or peer-to-peer (P2P) fulfillment.  

Due to the ongoing COVID-19 impact on businesses, it’s likely manufacturers will be forced to diversify their sourcing methods. Because of the low costs associated with manufacturing in China, it’s been the go-to for many brands. However, the tides are shifting on that front due to skyrocketing container costs and port congestion.  

To help mitigate these rising costs, sellers are encouraged to examine their operations and find ways to reduce packaging space and costs to align with FBA guidelines.  

Takeaways 

Despite all disruptions, obstacles, and pitfalls, growth is still the major narrative for Amazon as a company – and that’s good for sellers.  

We know that many obstacles remain, all threatening to erode sellers’ profit margins: Sky-high inflation rates, soaring supply chain costs, and rising ad prices abound, not to mention those pesky LTS fees back in place. All this shows that cost mitigation and cost recovery strategies will be paramount for Amazon success in 2022. 

Even though Amazon hasn’t returned to “normalcy,” it’s still winning the game compared to other marketplaces. Sellers can win too by finding inventive ways to thrive in this new normal. It’ll be a challenge, but one worth taking on. 

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