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Q1 results reveal why Amazon had to quarantine FBA stock

By Chris Dawson May 1, 2020 - 9:00 am

Amazon have released their Q1 results and they show a mammoth 26% increase in sales with $75.5 billion in the first quarter, compared with $59.7 billion in first quarter 2019. Bearing in mind that the Coronavirus crisis only really kicked off in the West in March, this suggests that the bulk of these sales may have come in the later stages of the quarter and also goes some way to explain why they had to quarantine FBA stock.

Q2 is looking even busier for Amazon who are forecasting sales to be between $75.0 billion and $81.0 billion, or to grow anything up to 28% compared with second quarter 2019.

But, and it’s a big but, these sales are coming at a cost and it’s a pretty big bill in the region of $4 or $5 billion.

“Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe. This includes investments in personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities.”
– Jeff Bezos, founder and CEO, Amazon

Amazon had two problems at the start of the Coronavirus crisis. A massive uptick in sales of essential and high demand items and operational problems with social distancing measures which were a major disruption to their operations. This is why they pushed out delivery dates by anything up to a month for non-essential products and shut the FBA doors to all bar a small list of essential products and quarantine FBA stock already in their warehouses.

The impact for merchants was disastrous. Their stock wasn’t selling with delivery dates four or five weeks into the future and they couldn’t retrieve it to sell on other sites. Now, as Amazon start to open FBA again for incoming shipments, they are limiting product quantities and are still only accepting some product lines.

In hindsight, perhaps it’s not surprising that in a pandemic Amazon let their merchants down. With the demands placed on their network not even Christmas or Prime Day could have prepared them for these levels of activity. However, Amazon have always made big of their support of small businesses often pointing out that more than half of all sales on their marketplace are from independent sellers. FBA is also a drug for sales, put your stock into FBA and you’ll sell exponentially more in normal times than if you self fulfil.

Amazon probably didn’t want to hurt your business at this point in time, in fact they’ve put a number of measure in place to assist you such as pausing Amazon Lending loan repayments, we also waiving one month of fees for long-term storage, Strategic Account Services account management, and the Launchpad program, as well as two weeks of inventory storage fees. The reality is however that if you rely on Amazon for your income and use FBA then it almost certainly has hurt.

Moving forward, the big danger now is that a second peak if the Coronavirus returns next winter with a vengeance could lead to Amazon quarantining your stock again. However as FBA opens up there is little doubt that once again it’ll help you win the buy box and greater sales. The best advice is not to put all your eggs in one basket and ensure that you have both stock on hand and the fulfilment capabilities to pivot to self fulfil at the drop of a hat.

The Coronavirus is literally a once in a century pandemic. However just because it comes 100 years after the Spanish Flu doesn’t mean there won’t be another pandemic this century… start making plans for Amazon ever quarantine FBA stock again.

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