By Charlie Chanaratsopon and Keith Richman
The COVID-19 pandemic has affected every person and almost every business on the planet, but it has been especially impactful for businesses in the e-commerce space. According to data from IBM’s U.S. Retail Index, the pandemic has sped up the shift from physical, in-person shopping to digital shopping by roughly five years.
In other words, we are operating in an accelerated, 2025 retail space where e-commerce is ahead of its time. The impact of Covid was even more significant for Amazon (AMZN), which overnight became the default shopping store for many in locked down cities — where shoppers turned to for everything from gifts to household appliances and even toilet paper (when you were lucky enough to find it there. I kept hitting refresh, but was never able to get any).
Not everyone was a winner though. At the height of the pandemic, people did not spend as much on “non-essential” items. According to the Organization for Economic Cooperation and Development (OECD), roughly 28.5% more third-party merchants on Amazon were inactive in April 2020 compared to February 2020. Some lucky sellers saw their sales spike, but others saw huge drops due to spending shifts, inventory controls, and other behavioral changes.
Clearly, things won’t go back to normal — the key for everyone selling on Amazon is figuring out which trends are temporary and which will be sustainable in the long term. As buyers of DTC brands, we think about this change every time we study a business. Below are some industry shifts we are looking for today.
What Will Happen To Consumer Spending
As the initial waves of the pandemic subsided, there was a small but promising uptick in consumer spending. Some of this is attributable to the fact that people got accustomed to living with the pandemic, and states became more willing to open parts of their economies. According to The Wall Street Journal, spending rose 1.9% in September 2020 as consumers sought to make purchases they were previously putting off, despite back-to-school sales being sidelined by school closures.
But consumer confidence is still relatively low, and even if a stimulus is passed soon, we may need to wait until a vaccine is readily available before we can start seeing major changes in spending. According to McKinsey & Company:
“While consumers’ spending intent shows improvement from previous months, it remains depressed across discretionary categories. Consumers are cautiously adjusting to the changing environment, with one-third of consumers reporting that they have returned to ‘normal’ out-of-home activity.”
Many of us run FBA businesses selling “discretionary” or “non-essential” products. We are paying close attention to what happens in these categories over the next several months. We expect growth to continue in most cases, given the secular shifts mentioned above, but we are acting a bit more conservatively. For example, we are launching fewer new products and watching inventory orders.
Amazon Will Maintain Its E-commerce Dominance, but Here Comes Walmart
There is no doubt that Amazon will continue to dominate the e-commerce space, which is generally good news for FBA sellers. After the pandemic struck, the company’s revenue jumped 40% compared to the previous year, reaching $88.9 billion. The e-commerce giant even hired 175,000 additional staff.
This trend resulted in online store sales jumping by 48%. Amazon enjoyed additional revenue because FBA sellers paid the company to ship their products.
While that bump was strong, Walmart and other channels saw explosive growth as well. Walmart’s online sales were up 79% in Q3 of 2020 and Best Buy experienced a 173.7% increase from a comparable period the year earlier. Thanks to canceled vacations and limited dining options, there has been a significant shift in consumer spending. Brands like Walmart and Best Buy who quickly adopted fulfillment models for curbside pick-up benefited greatly during this shift.
Amazon Will Expand Sellers’ Branding Opportunities
Amazon was already taking steps to improve sellers’ branding opportunities when the pandemic hit. And thanks to the surge in online shopping, there’s little doubt that the momentum behind these new branding opportunities will slow down.
Amazon’s Sponsored Products, Sponsored Brands, and its new Sponsored Display solutions now help advertisers reach relevant audiences with ads that appear on Amazon’s online real estate and on other sites. Now, sellers can even use Sponsored Brands videos to stand out in desktop and mobile shopping results.
We are paying close attention to what new advertising formats Amazon releases in 2021. We want to take advantage of them as soon as possible to give yourself an edge over your competitors.
There Will Be an Influx of New Sellers
Despite booming pandemic sales for Amazon, fewer new third-party sellers entered Amazon during 2020 than in previous years, particularly in the U.S. Since the start of 2017, 4.5 million new sellers globally have joined Amazon, and the platform added over one million new sellers in 2020. If you look at the long-term trends, those numbers are on par with the past three years.
This trend could have something to do with the double-edged sword the pandemic has brought to the e-commerce sector. E-commerce may be booming, but economic uncertainty is preventing many people from making the jump into a new venture.
Once the pandemic starts to subside, we expect to see more new sellers try to take advantage of Amazon’s continued dominance. Some of these sellers may be offline vendors moving online, but many will be entrepreneurs who have heard about the great success others are having and decide to take the plunge.
Amazon Will Require Sellers to Meet Prime Delivery Standards
If you hadn’t heard, Amazon will start requiring sellers to support Saturday pickup and delivery, as well as make Prime-eligible products available for delivery nationwide starting in February 2021. If you run a strictly FBA business, you won’t have to worry too much about this change because Amazon will take care of all your fulfillment needs. Given all the inventory restrictions that were implemented last year, many sellers (including us) began to look at backup fulfillment options. These additional requirements just add another layer of complication to the mix.