Insights

Amazon Q1 Call Recap: What It Means for Brands

Amazon Q1

On April 30, Amazon held its first quarterly earnings call since the start of the COVID-19 pandemic. Much of the call focused on how the company has responded to the pandemic, as well as the effects on shipping times, fulfillment options, and advertising.

 

Fulfillment Efficiency

As many consumers and brands already know, Amazon’s shipping times have been dramatically affected by the pandemic. The current situation is a stark contrast to the optimism and momentum of early this year, when retail titans raced to roll out guaranteed, one-day shipping to a majority of the US population. Shipping times are now stretched to one-to-four day delivery. Extended delays and out-of-stocks are also common.

Amazon CFO Brian Olsavsky re-iterated that COVID-19 left little time for any sort of preparation. Spikes in demand from a pandemic are far different from those caused by holidays and promotional events. It takes months of planning to ensure things will run smoothly in times of increased demand, and COVID-19 came with very little warning.

“We had to absorb this shock of top-line demand,” said Olsavsky in the call. “And also the ability to stabilize our operations. We had to take the step to focus on essential items, extend the shipping period from one to four days, and even further for non-essential items.”

Amazon has taken steps to counter overwhelming demand and relieve pressure on its supply chain.175,000 new employees were hired to bolster the company’s workforce. And the company also reduced its marketing spend to dampen some of that demand.

“As we add capacity, we’re trying to resume more normal operations as far as shipping of non-essential items and the speeding up of one-day shipments,” Olsavsky said.

When asked when fulfillment efficiency would fully return to normal, Olsavsky said there’s too much up in the air to make any projections.

 

Third-Party Sellers & Merchant Fulfilled Network

Despite challenges presented by the pandemic, Olsavsky said that Amazon’s third-party business continues to grow. Over half of the company’s sales are attributed to third-party sellers, and that remained the same throughout the first quarter of the pandemic.

Typically, FBA is the choice fulfillment option for third-party sellers on the marketplace. But limitations on inventory injection and potential shipping delays have left many sellers fulfilling orders themselves through MFN.

“MFN is picking up a lot of opportunity, and sellers are taking that opportunity to ship direct,” said Olsavsky in regards to how MFN is performing in contrast to FBA.

While opportunities for MFN may exist now, they could shift back to FBA as the company’s supply chain continues to stabilize.

 

Amazon Advertising

Amazon has grown its advertising business and is considered one of the heavy hitters of the digital advertising world. When asked how COVID-19 has affected the company’s advertising business, Olsavsky replied that it’s a “mixed bag.”

He noted that it’s still been a strong quarter as far as advertising growth is concerned, but that there was some pullback in mid-March.

Some of that pullback could be the result of out-of-stocks, as sponsored ad campaigns pause automatically if the promoted items go out-of-stock. For brands that are running low on inventory or are out of stock, Amazon recommends Sponsored Brands as an alternative for sponsored products.

Sponsored Brand ads link to Amazon Brand Stores, where shoppers can browse an entire brand catalog without having to be directed to a single listing.

 

The Road Ahead

If Amazon’s Q1 call told us anything, it’s that there’s still too much uncertainty to project where things will be in Q2 and Q3. It’s optimistic to think that fulfillment options and shipping speeds will smooth out in the near future, but there aren’t any guarantees.

How can brands react?

Nothing in retail is easy right now, and no one knows what will happen next. One thing is for certain: there are many tough decisions ahead for both retailers and brands, and each new situation will come with its own set of challenges. Agility across many areas — supply chain, distribution, manufacturing, and inventory planning — is absolutely essential to meet this new cycle of fast-paced and unpredictable change.