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Could COVID-19 be Amazon’s kryptonite?
How disrupted supply chains and angry sellers could hurt the e-commerce giant.
- Over one-third of all 2019 e-commerce sales in the US involved a purchase from Amazon, as the company continues to grow and diversify.
- While the company has overcome plenty of obstacles in the past, it's possible that the COVID-19 crisis is different.
- Among the factors which could finally bring down the giant are disrupted supply chains, disgruntled sellers, delivery delays, warehouse infections, and nosediving discretionary income among shoppers.
To say that Amazon is America's biggest e-commerce marketplace is almost an understatement. In 2019, the company generated approximately $280.5 billion in revenue. More than one-third of all US e-commerce sales came through Amazon last year. Scores of offline retailers have blamed Amazon for crushing them into the dust and poaching their customers.
But no retail giant is too big to fail, as other behemoths have demonstrated before Amazon. Sometimes they end in a bang, sometimes in a whimper. So far, Amazon has weathered accusations of ignoring product safety and has gotten away with paying $0 in taxes on its 2018 revenue, but to the not-so-secret delight of the businesses it destroyed on the way up, Amazon is looking more vulnerable today than it has in years.
In the case of Amazon, it's possible that its downfall could be the novel coronavirus and the disease it causes, COVID-19. This could be a silver lining for local businesses and e-commerce SMBs (small and medium-sized businesses) that are themselves trying to weather the economic upheaval of the outbreak.
Many experts have issued dire predictions that the coronavirus pandemic will wipe out scores of small businesses, but there's been less talk about the possibility that it could bring down a giant like Amazon. And yet the signs are there if you look closely.
Disrupted supply chain
Maryland GovPics / Flickr
Amazon faces a paradox that could break the system. On the one hand, it's seeing a massively increased demand for household goods, groceries and medical supplies like hand sanitizer and face masks. While this should mean more revenue for Amazon, it also places enormous stress on its supply chain.
Amazon operates on the principle of "just in time" delivery, which means that fulfillment warehouses never hold a lot of stock for any given product. It's based on the assumption that logistics are in place to ship more items as soon as stock levels begin to fall, but panic-buying depletes the inventory before manufacturers have the chance to respond.
What's more, disrupted worldwide logistics are delaying shipments, and even the US trucking network, which is the lifeblood of Amazon, is facing disruptions. Truckers are avoiding cities with shelter-in-place laws, complaining about the impact of corona regulations, and often face extra journeys to reach the goods they need to deliver.
Amazon is reshuffling logistics to prioritize essentials, but this in turn is damaging their ability to meet ongoing, although lower, demand for non-essentials. Bear in mind that "non-essentials" includes things like children's toys and games, electronics, and home sports equipment, all of which are in demand from parents and others stuck at home.
On top of that, most of Amazon's sellers ship their products from China, where industry is currently operating at least 13.5 percent below normal production rates. "How well stores keep products in stock will determine if they thrive or lose share in this crisis," said Sucharita Kodali, vice president and principal analyst at Forrester Research. The jury is still out on whether Amazon will pass this test.
The fall of third-party sellers
Amazon Fulfillment Center, Shakopee, Minnesota
Tony Webster / Flickr
It would be ironic if Amazon's fall were to come about due to the failure of its third-party sellers, given that Amazon has received so much criticism for pushing smaller retailers and brands out of business. Yet it remains a possibility.
Over 50 percent of Amazon sales are made through third-party sellers, and they are the foundation of the company's meteoric growth in the last few years. However, Amazon has been slowly selling them out, and COVID-19 could finally push them under.
For many vendors, Amazon is their only point of contact with customers. But now Amazon is turning away shipments of "non-essentials" to FBA (Fulfilled By Amazon) warehouses, in order to support smooth flow of essentials. This decision has affected approximately 53 percent of Amazon sellers, preventing them from shipping products to their customers.
Sellers who don't use FBA warehouses aren't affected by this, but part of the rise of Amazon has been to make FBA extremely attractive to both sellers and consumers. For sellers, using FBA gives them a better shot at winning the Buy Box and allows them to surrender the hassles of delivery and returns. Consumers enjoy faster delivery and the reassurance of the Amazon brand when sellers use FBA. As a result, only 6 percent of Amazon sellers don't use FBA, and they are the only ones who'll benefit from this decision.
Vendors are reportedly already looking at alternatives like Flexe, which can give more flexibility for storage than Amazon. If FBA loses its appeal, could the rest of the Amazon pyramid topple as well?
Adding insult to injury, Amazon still hasn't responded to seller requests to suspend in-house Amazon Working Capital loan payments, subscription fees, and other costs associated with selling on the platform. Amazon might weather the corona storm only to find that its Marketplace has walked away.
Failure to deliver on a core brand promise
Amazon Pickup & Returns in Philadelphia
Amazon's core brand promise is fast delivery. Amazon Fresh promises same-day delivery on groceries and produce. Amazon Prime entices subscribers primarily for the free two-day delivery, while Amazon Dash takes it a step further and guarantees to deliver new supplies of vital household goods just in time, before you run out.
However, the same disrupted supply chain, spikes in panic buying, and quarantine conditions in some cities are preventing Amazon from delivering on this brand promise. Some Prime deliveries will reportedly take up to a month to arrive, rather than two days.
At a time when communities are rallying to support local businesses in crisis, it's possible that negating a key aspect of its value proposition could be fatal for Amazon. If the company can't deliver in every sense of the word, then the previously loyal customer might just as well shop at the mom-and-pop grocery down the block that will deliver in the same timeframe. The customer would feel good about supporting their local business ecosystems, with less harm to the environment.
Additionally, many people using Amazon during the outbreak are first-time users who can't get out to shop at their usual local store. They've heard a lot of hype about Amazon's fast deliveries and have high expectations. Instead of meeting those expectations, Amazon is disappointing new customers with delays and short stock/out of stock messages. That is turning off people who could otherwise have become loyal shoppers, and hampering Amazon's future growth, if not its current stability.
Direct impact from disease
We can't ignore the direct impact of COVID-19 on Amazon's situation. So far, workers at ten warehouses have tested positive for COVID-19. In some cases, only the affected workers were directed to self-isolate and the fulfillment center continued to operate. Others had to be shut down for deep cleaning, disrupting Amazon's responsiveness further just when it needs it most.
A warehouse in Kentucky has had to close indefinitely after staff members protested being sent back to work, showing that angry employees do have the power to bring down Amazon.
Amazon also stands accused of not doing enough to protect workers, including failing to notify them about COVID-19 cases in their workplaces, refusing to pay for coronavirus-related sick leave until pressured into doing so, and not supplying enough cleaning materials to keep warehouses sanitized.
The threat of potentially fatal infection could push away even the most desperate for work Amazon employees, and the outbreak has brought political pressure on the company to improve its employee relations.
The overall global slowdown
Finally, the global COVID-19-provoked economic slowdown is also going to impact Amazon's retail revenue. At a time when people are losing jobs and watching businesses collapse, they are spending far less than usual on extra purchases.
Prime Day in July brings in a significant segment of Amazon's revenue, but it's unlikely that most economies will be in good enough shape to support mass materialism by then.
What's more, small to medium businesses are pulling back on spending in order to preserve their cash flow. For many, one option is to delay a shift to the cloud, reducing demand for Amazon Web Services (AWS). According to the company's earning report for Q4 2019, 67 percent of its operating income came from AWS.
As SMEs drop out of business, AWS stands to lose still more customers.
History teaches us that nothing is inevitable until it happens, but there are strong signs that Amazon could be reaching the end of a long run. Disrupted supply chains, disgruntled sellers who see the downside of relying on Amazon, failure to deliver on a core brand promise, a desire to support local businesses, and the direct dual impact of disease among workers and a global recession dragging down demand could between them deliver a flurry of punches that could leave Amazon down and out.
- Who's profiting most from the coronavirus outbreak? - Big Think ›
- Why companies are incentivized to ignore workplace safety - Big Think ›
Why mega-eruptions like the ones that covered North America in ash are the least of your worries.
- The supervolcano under Yellowstone produced three massive eruptions over the past few million years.
- Each eruption covered much of what is now the western United States in an ash layer several feet deep.
- The last eruption was 640,000 years ago, but that doesn't mean the next eruption is overdue.
The end of the world as we know it
Panoramic view of Yellowstone National Park
Image: Heinrich Berann for the National Park Service – public domain
Of the many freak ways to shuffle off this mortal coil – lightning strikes, shark bites, falling pianos – here's one you can safely scratch off your worry list: an outbreak of the Yellowstone supervolcano.
As the map below shows, previous eruptions at Yellowstone were so massive that the ash fall covered most of what is now the western United States. A similar event today would not only claim countless lives directly, but also create enough subsidiary disruption to kill off global civilisation as we know it. A relatively recent eruption of the Toba supervolcano in Indonesia may have come close to killing off the human species (see further below).
However, just because a scenario is grim does not mean that it is likely (insert topical political joke here). In this case, the doom mongers claiming an eruption is 'overdue' are wrong. Yellowstone is not a library book or an oil change. Just because the previous mega-eruption happened long ago doesn't mean the next one is imminent.
Ash beds of North America
Ash beds deposited by major volcanic eruptions in North America.
Image: USGS – public domain
This map shows the location of the Yellowstone plateau and the ash beds deposited by its three most recent major outbreaks, plus two other eruptions – one similarly massive, the other the most recent one in North America.
The Huckleberry Ridge eruption occurred 2.1 million years ago. It ejected 2,450 km3 (588 cubic miles) of material, making it the largest known eruption in Yellowstone's history and in fact the largest eruption in North America in the past few million years.
This is the oldest of the three most recent caldera-forming eruptions of the Yellowstone hotspot. It created the Island Park Caldera, which lies partially in Yellowstone National Park, Wyoming and westward into Idaho. Ash from this eruption covered an area from southern California to North Dakota, and southern Idaho to northern Texas.
About 1.3 million years ago, the Mesa Falls eruption ejected 280 km3 (67 cubic miles) of material and created the Henry's Fork Caldera, located in Idaho, west of Yellowstone.
It was the smallest of the three major Yellowstone eruptions, both in terms of material ejected and area covered: 'only' most of present-day Wyoming, Colorado, Kansas and Nebraska, and about half of South Dakota.
The Lava Creek eruption was the most recent major eruption of Yellowstone: about 640,000 years ago. It was the second-largest eruption in North America in the past few million years, creating the Yellowstone Caldera.
It ejected only about 1,000 km3 (240 cubic miles) of material, i.e. less than half of the Huckleberry Ridge eruption. However, its debris is spread out over a significantly wider area: basically, Huckleberry Ridge plus larger slices of both Canada and Mexico, plus most of Texas, Louisiana, Arkansas, and Missouri.
This eruption occurred about 760,000 years ago. It was centered on southern California, where it created the Long Valley Caldera, and spewed out 580 km3 (139 cubic miles) of material. This makes it North America's third-largest eruption of the past few million years.
The material ejected by this eruption is known as the Bishop ash bed, and covers the central and western parts of the Lava Creek ash bed.
Mount St Helens
The eruption of Mount St Helens in 1980 was the deadliest and most destructive volcanic event in U.S. history: it created a mile-wide crater, killed 57 people and created economic damage in the neighborhood of $1 billion.
Yet by Yellowstone standards, it was tiny: Mount St Helens only ejected 0.25 km3 (0.06 cubic miles) of material, most of the ash settling in a relatively narrow band across Washington State and Idaho. By comparison, the Lava Creek eruption left a large swathe of North America in up to two metres of debris.
The difference between quakes and faults
The volume of dense rock equivalent (DRE) ejected by the Huckleberry Ridge event dwarfs all other North American eruptions. It is itself overshadowed by the DRE ejected at the most recent eruption at Toba (present-day Indonesia). This was one of the largest known eruptions ever and a relatively recent one: only 75,000 years ago. It is thought to have caused a global volcanic winter which lasted up to a decade and may be responsible for the bottleneck in human evolution: around that time, the total human population suddenly and drastically plummeted to between 1,000 and 10,000 breeding pairs.
Image: USGS – public domain
So, what are the chances of something that massive happening anytime soon? The aforementioned mongers of doom often claim that major eruptions occur at intervals of 600,000 years and point out that the last one was 640,000 years ago. Except that (a) the first interval was about 200,000 years longer, (b) two intervals is not a lot to base a prediction on, and (c) those intervals don't really mean anything anyway. Not in the case of volcanic eruptions, at least.
Earthquakes can be 'overdue' because the stress on fault lines is built up consistently over long periods, which means quakes can be predicted with a relative degree of accuracy. But this is not how volcanoes behave. They do not accumulate magma at constant rates. And the subterranean pressure that causes the magma to erupt does not follow a schedule.
What's more, previous super-eruptions do not necessarily imply future ones. Scientists are not convinced that there ever will be another big eruption at Yellowstone. Smaller eruptions, however, are much likelier. Since the Lava Creek eruption, there have been about 30 smaller outbreaks at Yellowstone, the last lava flow being about 70,000 years ago.
As for the immediate future (give or take a century): the magma chamber beneath Yellowstone is only 5 percent to 15 percent molten. Most scientists agree that is as un-alarming as it sounds. And that its statistically more relevant to worry about death by lightning, shark, or piano.
Strange Maps #1041
Got a strange map? Let me know at firstname.lastname@example.org.
How imagining the worst case scenario can help calm anxiety.
- Stoicism is the philosophy that nothing about the world is good or bad in itself, and that we have control over both our judgments and our reactions to things.
- It is hardest to control our reactions to the things that come unexpectedly.
- By meditating every day on the "worst case scenario," we can take the sting out of the worst that life can throw our way.
Are you a worrier? Do you imagine nightmare scenarios and then get worked up and anxious about them? Does your mind get caught in a horrible spiral of catastrophizing over even the smallest of things? Worrying, particularly imagining the worst case scenario, seems to be a natural part of being human and comes easily to a lot of us. It's awful, perhaps even dangerous, when we do it.
But, there might just be an ancient wisdom that can help. It involves reframing this attitude for the better, and it comes from Stoicism. It's called "premeditation," and it could be the most useful trick we can learn.
Broadly speaking, Stoicism is the philosophy of choosing your judgments. Stoics believe that there is nothing about the universe that can be called good or bad, valuable or valueless, in itself. It's we who add these values to things. As Shakespeare's Hamlet says, "There is nothing either good or bad, but thinking makes it so." Our minds color the things we encounter as being "good" or "bad," and given that we control our minds, we therefore have control over all of our negative feelings.
Put another way, Stoicism maintains that there's a gap between our experience of an event and our judgment of it. For instance, if someone calls you a smelly goat, you have an opportunity, however small and hard it might be, to pause and ask yourself, "How will I judge this?" What's more, you can even ask, "How will I respond?" We have power over which thoughts we entertain and the final say on our actions. Today, Stoicism has influenced and finds modern expression in the hugely effective "cognitive behavioral therapy."
Helping you practice StoicismCredit: Robyn Beck via Getty Images
One of the principal fathers of ancient Stoicism was the Roman statesmen, Seneca, who argued that the unexpected and unforeseen blows of life are the hardest to take control over. The shock of a misfortune can strip away the power we have to choose our reaction. For instance, being burglarized feels so horrible because we had felt so safe at home. A stomach ache, out of the blue, is harder than a stitch thirty minutes into a run. A sudden bang makes us jump, but a firework makes us smile. Fell swoops hurt more than known hardships.
What could possibly go wrong?
So, how can we resolve this? Seneca suggests a Stoic technique called "premeditatio malorum" or "premeditation." At the start of every day, we ought to take time to indulge our anxious and catastrophizing mind. We should "rehearse in the mind: exile, torture, war, shipwreck." We should meditate on the worst things that could happen: your partner will leave you, your boss will fire you, your house will burn down. Maybe, even, you'll die.
This might sound depressing, but the important thing is that we do not stop there.
Stoicism has influenced and finds modern expression in the hugely effective "cognitive behavioral therapy."
The Stoic also rehearses how they will react to these things as they come up. For instance, another Stoic (and Roman Emperor) Marcus Aurelius asks us to imagine all the mean, rude, selfish, and boorish people we'll come across today. Then, in our heads, we script how we'll respond when we meet them. We can shrug off their meanness, smile at their rudeness, and refuse to be "implicated in what is degrading." Thus prepared, we take control again of our reactions and behavior.
The Stoics cast themselves into the darkest and most desperate of conditions but then realize that they can and will endure. With premeditation, the Stoic is prepared and has the mental vigor necessary to take the blow on the chin and say, "Yep, l can deal with this."
Catastrophizing as a method of mental inoculation
Seneca wrote: "In times of peace, the soldier carries out maneuvers." This is also true of premeditation, which acts as the war room or training ground. The agonizing cut of the unexpected is blunted by preparedness. We can prepare the mind for whatever trials may come, in just the same way we can prepare the body for some endurance activity. The world can throw nothing as bad as that which our minds have already imagined.
Stoicism teaches us to embrace our worrying mind but to embrace it as a kind of inoculation. With a frown over breakfast, try to spend five minutes of your day deliberately catastrophizing. Get your anti-anxiety battle plan ready and then face the world.
A study on charity finds that reminding people how nice it feels to give yields better results than appealing to altruism.
- A study finds asking for donations by appealing to the donor's self-interest may result in more money than appealing to their better nature.
- Those who received an appeal to self-interest were both more likely to give and gave more than those in the control group.
- The effect was most pronounced for those who hadn't given before.
Even the best charities with the longest records of doing great fundraising work have to spend some time making sure that the next donation checks will keep coming in. One way to do this is by showing potential donors all the good things the charity did over the previous year. But there may be a better way.
A new study by researchers in the United States and Australia suggests that appealing to the benefits people will receive themselves after a donation nudges them to donate more money than appealing to the greater good.
How to get people to give away free money
The postcards that were sent to different study subjects. The one on the left highlighted benefits to the self, while the one on the right highlighted benefits to others.List et al. / Nature Human Behaviour
The study, published in Nature Human Behaviour, utilized the Pick.Click.Give program in Alaska. This program allows Alaska residents who qualify for dividends from the Alaska Permanent Fund, a yearly payment ranging from $800 to $2000 in recent years, to donate a portion of it to various in-state non-profit organizations.
The researchers randomly assigned households to either a control group or to receive a postcard in the mail encouraging them to donate a portion of their dividend to charity. That postcard could come in one of two forms, either highlighting the benefits to others or the benefits to themselves.
Those who got the postcard touting self-benefits were 6.6 percent more likely to give than those in the control group and gave 23 percent more on average. Those getting the benefits-to-others postcard were slightly more likely to give than those receiving no postcard, but their donations were no larger.
Additionally, the researchers were able to break the subject list down into a "warm list" of those who had given at least once before in the last two years and a "cold list" of those who had not. Those on the warm list, who were already giving, saw only minor increases in their likelihood to donate after getting a postcard in the mail compared to those on the cold list.
Additionally, the researchers found that warm-list subjects who received the self-interest postcard gave 11 percent more than warm-list subjects in the control group. Amazingly, among cold-list subjects, those who received a self-interest postcard gave 39 percent more.
These are substantial improvements. At the end of the study, the authors point out, "If we had sent the benefits to self message to all households in the state, aggregate contributions would have increased by nearly US$600,000."
To put this into perspective, in 2017 the total donations to the program were roughly $2,700,000.
Is altruism dead?
Are all actions inherently self-interested? Thankfully, no. The study focuses entirely on effective ways to increase charitable donations above levels that currently exist. It doesn't deny that some people are giving out of pure altruism, but rather that an appeal based on self-interest is effective. Plenty of people were giving before this study took place who didn't need a postcard as encouragement. It is also possible that some people donated part of their dividend check to a charity that does not work with Pick.Click.Give and were uncounted here.
It is also important to note that Pick.Click.Give does not provide services but instead gives money to a wide variety of organizations that do. Those organizations operate in fields from animal rescue to job training to public broadcasting. The authors note that it is possible that a more specific appeal to the benefits others will receive from a donation might prove more effective than the generic and all-inclusive "Make Alaska Better For Everyone" appeal that they used.
In an ideal world, charity is its own reward. In ours, it might help to remind somebody how warm and fuzzy they'll feel after donating to your cause.
The 'Monkeydactyl' was a flying reptile that evolved highly specialized adaptations in the Mesozoic Era.