Last week, Amazon shut down its fulfillment centres in France amid a dispute with unions over alleged covid-19-related health hazards. A French court ruled in favour of the union, ordering the company to limit deliveries to necessities such as medical supplies and food until it fulfils a risk assessment and improves safety measures, and threatened to fine Amazon $US1.1 ($2) million for each day that it didn’t comply. Amazon decided it would rather shut down entirely than risk paying the fines and plans to keep warehouses closed until at least April 22.Â
In the U.S., too, the company has been battling criticism and protests for weeks over allegations that it’s sending workers into potential covid-19 hotbeds so that they can stock dildos (apparently top sellers). The retail workers’ advocacy group United for Respect, which is organising a nationwide sick-out by hundreds of Amazon workers, reports that over 130 Amazon facilities now have confirmed cases of covid-19, up from 74 last week.
Gizmodo has urged everyone to obliterate their Prime accounts and workers to go on strike. But by the widely cited research group eMarketer’s latest estimate, Amazon was already on track to eat up nearly 39 per cent of all e-commerce in the U.S. this year before the pandemic. EMarketer tells Gizmodo it plans to update the figure in a month or so, and that any movement now is “too early to tell.” But one can glean from sunny earnings forecasts and a recent, furious hiring spree that Amazon will cast a long shadow over competitors. The prolonged closure of brick-and-mortar stores has sparked some debate over whether Amazon will conquer “nonessential” businesses after they emerge. Walmart, the country’s largest retailer, has reportedly seen a 20 per cent rise in Walmart.com sales since February, but as of last year, eMarketer estimated that the company trailed Amazon in e-commerce by a mile, with only 4.7 per cent market share of total online sales. Amazon is reportedly selling so much stuff that it’s trying to get us to stop buying so much.
The fact is that people need essential supplies like food and cleaning supplies, and, stuck indoors most of the time, they want non-essential items like books, video games, toys, gadgets, and more. All that shopping has to happen somewhere, and as the coronavirus pandemic has spread across the globe, Amazon has eagerly filled that need. But the system is showing signs of reaching capacity, and the annual mid-July Prime Day has been suspended indefinitely to serve the overwhelming demand for paper towels, masks, and hand sanitizer. Are we a nation of Amazon hostages, lured by the once-spectacular novelty of overnight delivery? Would a temporary distribution centre shutdown spell doom for the United States?
Don’t discount independent sellers
First, a complete Amazon shutdown is a pretty distant hypothetical, Peter Newberry, assistant professor of economics at Penn State and co-author of an analysis of Amazon’s fulfillment network, told Gizmodo. “I think there would have to be a major issue, specifically with the shipping industry, in order for something like that to happen.” (Newberry cautioned that he focuses on high-level, aggregated data, so he can’t speak to spending data or Amazon as a paper towel outfit.)
It’s true that individual sellers rely heavily on Amazon’s resources for distribution as well as customer acquisition. In his 2018 shareholder letter, Jeff Bezos wrote that, largely thanks to the allure of Amazon’s fulfillment program, 58 per cent of the company’s sales came from third-party sellers. (“Third-party sellers are kicking our first party butt,” he wrote. “Badly.”) EMarketer tells Gizmodo it estimates that sales through Amazon marketplace make up 22.8 per cent of all e-commerce sales, dwarfing eBay’s total sales. Etsy, which has urged its sellers to make face masks, doesn’t even make eMarketer’s top 10 list for online sellers.
But indie online shops are still selling directly; local distilleries are making hand sanitizer, while hygiene brands are selling toothpaste and toiletries, and restaurants are selling their pantries to consumers like groceries. Merchants of many “nonessentials” like bookstores, kitchen appliance companies, home goods sellers, and more are still delivering directly from their sites. People are pondering the moral weight of shopping online, and urging one another to buy local and direct instead.
It’s even possible that an Amazon distribution network closure might make it easier for local shops to keep supplies on the shelf. Sunil Chopra, author of Supply Chain Management: Strategy, Planning, and Operation,Â told Gizmodo that convenience-ordering frequently purchased items such as “food, detergent, and toothpaste” puts undue “stress” on the supply chain. “The existing retail infrastructure is very well-suited to supply [essential items],” Chopra said. For low-quantity, infrequent purchases, like a book on Indian history, he added, Amazon is “much harder to replace.”
What about unusually high-demand products, like masks? Chopra would put those, too, in the “essentials” category that local retailers can easily distribute”if the supply were available.
“A good comparison would be with the distribution of preordered Harry Potter books from 15 years ago,” he offered. Borders and Barnes & Noble could provide those books more cheaply and easily because they knew exactly how many their customers would want and didn’t have to overstock, or even stock shelves in the front of the house. He said that so long as supply is available, masks could likewise be easily distributed through brick-and-mortar stores or even post offices. “In my opinion, Amazon is the wrong way to be distributing masks to all.”
But Borders is dead, and a bookshop might have been more prepared to handle a wildly popular bestseller than an unforeseeable surge in niche items. Even where stores are prepared, a small town can’t possibly have a store for everything people might need to survive months inside, and often online shopping is a welcome alternative.
MIT professor Sharmila Chatterjee, who lectures on marketing with a focus on distribution channels, points out that Amazon’s brick-and-mortar competitors would need months of lead time to build the kind of distribution muscle Amazon has since Harry Potter’s heyday. “I do not believe that brick-and-mortar stores will ever go away, and I’ve written about how brick-and-mortar stores complement e-commerce,” she told Gizmodo. (See here.) “But if Amazon [distribution centres] shut down, it would definitely cause major disruption. Hopefully, we could see supplies on the shelves on a regular basis, but that is not something that is possible quickly.”
Chatterjee went on to explain that distribution channels take companies years to lay down, and they’re very difficult for competitors to imitate in the short-term. Brick-and-mortar stores that have streamlined just-in-time stocking are limited by lean warehouses, trucking capacity, and pre-planned delivery volumes. “If they had months, they might be able to adjust, but I think that given Amazon’s dominance in infrastructure, logistics, and the supply chain, it would be very hard to fill that gap,” she said.
There’s always Walmart
Amazon isn’t the nation’s sole, or event dominant, retail giant, Newberry pointed out. Walmart, including its brick-and-mortar stores, is still nearly twice as big, making over $US500 ($791) billion in FY 2019, while Amazon made a little over $US280 ($443) billion. While Amazon, by highest estimates, dominates around 50 per cent of e-commerce, the Census Bureau found that e-commerce comprised only 11 per cent of total sales in the U.S. last year. So prior to the crisis, an Amazon closure probably would not have wrought an earth-shattering shortage of essential goods.
Now, that 11 per cent figure has undoubtedly risen, since the majority of the United States hasn’t left the house for a month. “How much? I really have no idea,” Newberry said, but you only have to look up out-of-stock essential items on the site, and news that Amazon has prioritised those goods, to glean that Amazon is a major supplier. “But I don’t know how much of that is due to the overall increase in purchasing from hoarding and how much of that is due to the shift in spending.”
A network shutdown would be “disruptive” but not “devastating,” he said. “Conditional on the stopping of the hoarding behaviour (a big IF), I think brick and mortar retailers would likely make up for a lot of the slack [in supplying essential items].”
Newberry added that Amazon does employ a lot of people. According to Jeff Bezos’s annual shareholder letter, the company “directly and indirectly supports” 2 million jobs in the United States, roughly the population of New Mexico. Since Amazon would be highly unlikely to compensate workers during a shutdown (this is not France), the job losses would hurt.
Getting to your door
Yale economics professor Katja Seim, who co-authored the Amazon study with Newberry, pointed out that Amazon Logistics, which delivered nearly half of Amazon’s packages as of last year, nearly rivals UPS now; Amazon Logistics shipped 3.5 billion packages to UPS’s 5.5 billion packages and documents in 2019. FedEx, which stopped delivering Amazon packages last year”officially recognising Amazon’s in-house and contracted delivery services as “competitors“”reportedly delivered around 3 billion packages as of last year.
Walmart might take some time to scale up home delivery, she added, since most of its fulfillment centres deliver to stores rather than Walmart.com customers.
There is “no serious contender” in retail for Amazon’s distribution capacity, Robert Handfield told Gizmodo. Handfield founded the Supply Chain Resource Cooperative, a research centre out of North Carolina State University that partners with companies such as UPS.
“UPS and FedEx can step in to handle the volume from shippers of other products if it came to that,” he said, but “there will definitely continue to be shortages of some products like sanitizer and masks for sure.” The most likely locations would be places most embattled by covid-19, like New York. He guessed that food deliveries would likely be covered by alternative services, like Instacart. (Though those services have their own drawbacks, and not everyone lives in an area served by delivery services.)
Looks like we’re stuck with Amazon anyway
While safety and human rights probes of Amazon are underway here, France’s daily million-dollar fines seem less likely in a country where a corporate-friendly Supreme Court wouldn’t award Amazon workers so much as payment for time spent in lengthy security checks. If you’re able to brave the lines at the grocery store, disability rights advocates are urging you to do that.