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HEALTHY AS AN OX

The coronavirus crisis is what Amazon was made for

An Amazon delivery person walks in Times Square following the outbreak of Coronavirus
Reuters/Carlo Allegri
A delivery person in New York’s Times Square after the beginning of the coronavirus outbreak.
By Marc Bain
Published Last updated This article is more than 2 years old.

Countless Americans are going online to buy their necessities as they hunker down in their homes to avoid interacting with other people.

If there’s one company that was practically built to supply them, it’s Amazon.

The company’s premise has always been to make nearly any item a shopper might want available with a single click from a computer or phone, and delivered as fast as possible to their door. With Americans around the country trying to halt the spread of the contagious new coronavirus by working from home and avoiding crowded public spaces, many are flooding Amazon with orders.

On March 16, the company said “to meet the surge in demand from people relying on Amazon’s service” it would hire 100,000 workers in full- and part-time positions in its warehouses and delivery network. It has also said the glut of orders it’s receiving have strained its stock of household staples and medical supplies, prompting it to suspend shipments of non-essential items to its warehouses through April 5. The change is to allow the company to maintain its inventory of high-demand products, and it applies to items coming from wholesale vendors as well as third-party sellers, who store their goods at Amazon’s warehouses as part of the Fulfillment by Amazon program.

“Especially when people are being told to stay home, the options you have are either to go to local grocery stores or just order online,” says Sucharita Kodali, an e-commerce and retail analyst at Forrester Research. “And if you’re going to order online, everybody goes to their go-to resource, which is of course Amazon.”

Amazon Primed for sales

Subscribers to Amazon’s subscription service, Prime, are particularly prone to buying what they need at Amazon. There are already more more than 150 million Prime members globally, with the largest share located in the US, where Amazon does the majority of its sales.

Amazon isn’t the only retailer in a position to weather the devastating outbreak, which has forced companies selling products such as clothes and footwear to temporarily close stores throughout the US and Europe. Others offering essentials such as Walmart, Target, Costco, large grocery chains including Kroger, and probably to a lesser degree Walgreens, CVS, and dollar stores are likely to emerge strong, according to Kodali. They were the sorts of retailers to fare best in the 2008 recession and are likely to do the same now, she says.

But e-commerce looks to be particularly important as shoppers avoid stores. “Prepare for a dramatic increase in online demand,” IRI, a data and analytics firm, said in a March 12 report (pdf) advising retailers. While Walmart, Target, and others have seen strong growth in their online sales, it’s a channel Amazon dominates (Quartz member exclusive).

The IRI report noted click-and-collect options, which let customers fill an order online and pick it up in-store, or even curbside at retailers such as Walmart, should see substantial jumps too. Though Amazon could have another advantage over its competition.

The run on supplies has left a number of retailers low on in-demand items, such as disinfectant spray and certain foods. Like others, Amazon buys these items directly from wholesaler vendors and sells them to the public. But it also has independent sellers on its giant third-party marketplace helping to meet the demand. It may not be enough to keep every item available. Even Amazon has run out of toilet paper. But Amazon’s business model relies on offering a vast inventory of items it could never supply by itself.

“They fare better because of the marketplace versus Walmart and Target,” Kodali says. “When [those retailers] are out of stock, they don’t have marketplace sellers to lean on.” (Walmart and Target do have their own third-party marketplaces, but they’re nowhere near as large as Amazon’s.)

That marketplace can be a liability too. Earlier this month Amazon removed hundreds of thousands of products and suspended some 2,500 sellers over price gouging on products such as hand sanitizer and face masks and blocked new listings. The situation has shone a spotlight on how sellers use the marketplace for what they call “retail arbitrage”—buying products in bulk elsewhere to resell on Amazon for a profit—and is sure to bring more attention from regulators.

One potential risk to Amazon’s dominance are employees at its enormous fulfillment centers getting sick. In Spain and Italy, its workers have tested positive for Covid-19, while workers in the US told the Washington Post Amazon wasn’t taking enough precautions. As more staff is hired to meet the growing demand from shoppers, the situation only seems likely to get worse.

Risks of warehouse outbreaks

A company spokesperson told the Post Amazon was “going to great lengths to keep the buildings extremely clean and help employees practice important precautions such as social distancing and other measures.” In an email, a spokesperson also referred Quartz to a recent blog post describing measures Amazon has taken, such as committing to provide up to two weeks of pay to all workers diagnosed with Covid-19 or put in quarantine.

Outbreaks among Amazon staff could be a major disruption for the company—but then that’s a concern for every retailer.  Workers in Walmart’s supercenters, which the company says average 182,000 square feet and employ about 300 associates, are trying to keep shelves stocked while maintaining their own health and that of customers.

As of now it’s not clear how much Amazon’s sales might change from the surge in demand it’s seen. Sales of items such as hand sanitizer and canned foods can only offer so much of a boost for a company that did $280.5 billion in total sales last year, much of them coming from services such as its cloud-computing platform for businesses. Customer orders of non-essentials could be falling at the same time, and Kodali says from what she’s seen shoppers are still buying their fresh food from their local grocer.

But currently all signs indicate the crisis will carry on for weeks or months in the US, and while it does, many shoppers eager to avoid crowds will buy much of what they need from Amazon. The new shoppers among them may find they like the service and become loyal customers, even signing up to Prime. Existing customers may find their dependence on Amazon only grows. The situation only seems likely to hasten the growth of e-commerce, and to fortify Amazon’s stronghold at its center.

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