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.
Satellite movie shows clouds of carbon monoxide drifting over South America.
- The Amazon fires were captured by the AIRS camera on the Aqua satellite.
- A movie clip released by NASA shows a huge cloud of CO drifting across the continent.
- Fortunately, carbon monoxide at this altitude has little effect on air quality.
You don't need eyes to see the massive fires raging in the Amazon. An infrared camera fitted on a satellite will do.
This movie, based on data collected from 8th to 22nd of August by the Atmospheric Infrared Sounder (AIRS) on NASA's Aqua satellite, shows carbon monoxide (CO) levels at 18,000 feet (5.5 km) above South America.
The colours denote the density of carbon monoxide, from green (approximately 100 parts per billion by volume) over yellow (app. 120 ppbv) to dark red (app. 160 ppbv). Local values can be much higher. Each separate shot is the average of three days' worth of measurements, a technique used to eliminate data gaps.
As the clip shows, the CO plume rises in the northwest part of the Amazon, a massive region covering Brazil's western half. First it drifts further northwest, towards the Pacific Ocean; then, in a more concentrated plume, towards Brazil's southeast.
CO (1) can persist up to a month in the atmosphere and can travel large distances. At the altitude shown in this clip, it has little effect on the air we breathe. However, strong winds can carry it down to inhabited parts, where it can impact air quality.
Deforestation in the Amazon forest, just east of Porto Velho, following the typical 'fishbone' pattern.
Image: Planet Labs, Inc. / CC BY-SA 4.0
The rainforests of the Amazon are often called the 'lungs of the planet', because they absorb large amounts of CO2 and produce roughly one-fifth of the planet's oxygen. In other words: one in every five of the breaths you take you owe to the Amazon.
But the Amazon's respiratory function is impaired by deforestation, a process which continues on a massive scale, both in Brazil and worldwide. In 2018, the planet lost 30 million acres of tree cover (roughly the size of Pennsylvania). This included almost 9 million acres of rain forest (slightly more than the size of Maryland).
Thanks to efforts by Brazil's previous administration, deforestation in the Amazon had slowed down to its slowest paces since records began; but a recession in 2014 again placed economic needs above ecological concerns. The pace of deforestation increased again and it has only accelerated since the election last year of Brazil's new president, Jair Bolsonaro.
850,000 acres lost
Amazon forest fires raging in Brazil's Maranhão state.
Image: Ibama / CC BY 2.0
Mr Bolsonaro's campaign pledge to open larger swathes of the Amazon for exploitation has emboldened local ranchers and farmers. From January to August this year, Brazil's National Institute of Space Research identified more than 40,000 separate forest fires in the country – 35% more than the average for the first eight months of each year since 2010.
Few of these fires occur naturally: most are set in order to increase the land available for crops and pasture. As a result, the Amazon lost more than 850,000 acres of forest cover in the first half of this year alone. That's 39% more than in the same period last year and represents an area the size of Rhode Island.
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(1) Carbon monoxide (CO) is often confused with carbon dioxide (CO2). Both are gases without colour, smell or taste, both are formed by the combination of carbon and oxygen, both are released during combustion or fire, both can be lethal in high concentrations and both play a role in air pollution and climate change.
CO2 is a very common gas.
- The current average CO2 level in Earth is 400 ppm. It is a natural by-product of respiration, fermentation and combustion, and is required for plant life.
- Although this is the gas that gives divers 'the bends', CO2 poisoning in general is rare.
- CO2 is life-threatening only from 80,000 ppm (8%).
CO, on closer inspection, is quite different.
- It is a by-product of oxygen-starved combustion of fuel. In nature, it occurs only in trace amounts – main sources include volcanic eruptions and forest fires, as currently in the Amazon.
- So, CO is relatively rare component of the Earth's atmosphere. The current average is 0.1 ppm.
- Concentrations of less than 100 ppm can induce headaches and dizziness. By 700 ppm, CO can be deadly.
- Dangerous levels of CO are produced by improperly ventilated ovens, heaters, furnaces and other fuel-burning appliances, as well as car engines without catalytic converters. CO poisoning is the most common type of poisoning in the world.
The blazes may be the first step in a hellish downward spiral.
- Never before has so much of the Amazon rainforest been on fire.
- The fires are largely set by humans clearing areas for development.
- The fires may push us into a vicious, irreversible climate pattern.
There's a reason the Amazon rainforest is referred to as the "Lungs of the World": It accounts for 17 percent of the carbon dioxide absorbed by the world's trees and produces 20 percent of the oxygen we breathe.
At the moment, though, the Amazon is on fire. This year alone, Brazil research agency INPE has recorded more than 73,000 fires there, an increase of 83 percent since just last year. And we're still a month away from the peak of the area's driest season, which doesn't abate until November. As of last Thursday, August 22, there were about 2,500 active fires.
Climate experts are concerned the Amazon fires could be a harbinger, or even a trigger, of a "dieback" scenario. If so, the Amazon would no longer help offset climate change by absorbing greenhouse gas, but, instead, begin producing massive amounts of Co2 as it burns — this wouldn't just make climate change worse, but it would cause the forest itself to become locked in a vicious cycle, where it becomes increasingly dry and more readily flammable.
Experts fear we may be entering such a vicious cycle and that it could accelerate into a doomsday scenario for humankind.
Why the Amazon is burning: Timber and meat
The prime driver for the historical deforestation of the Amazon has been the clearing of forests by loggers and the subsequent allocation of the naked land for cattle grazing in service of the global meat industry. Eating less meat is a strategic goal that the world needs to work toward more aggressively — starting, well, yesterday. The WWF asserts that 17 percent of the rainforest has been lost over the last 50 years, some 18.7 million acres per year at a rate of 27 soccer fields a minute.
Such clearing of trees opens up the forest canopy, drying out the understory and the edges of growth areas, according to a troubling essay in The Conversation. Its authors explain how "normally fire-proof rainforests become flammable."
Prior to the recent surge in fires, rainforest destruction had been on the decline thanks to growing awareness of the Amazon's importance — a PSA promoted by groups such as Save the Rainforest, as well as through stricter local regulations. However, it's been picking up again lately. São Paolo got a wakeup call last week when a cold front, some clouds, and smoke from the burning turned day into night.
NASA's image of fires in the Amazon from August 15-22, 2019. Image source: NASA Earth Observatory
Why the Amazon is burning: Industrialization
The return to excessive rainforest exploitation is also a result of the ascension of Jair Bolsonaro to Brazil's presidency. One of the current crop of climate-denying, right-wing politicians rising to powerful positions around the world, Bolsanaro campaigned on opening the Amazon to more farming and mining, and has been weakening environmental protections since taking office. His pro-development stance has reportedly emboldened Amazon farmers who use burning to clear tracts of land — a sizable portion of the current conflagrations is attributed to this practice. Bolsonaro has also been disturbingly clear in his negative view of the remaining indigenous tribes being displaced, and who once numbered in the millions.
Bolsonaro has also claimed that non-governmental organizations (NGOs) were setting the fires to embarrass him, though he later backtracked, claiming he had never accused the NGOs. According to Greenpeace, his government has gone so far as to block international aid intended to help put out the fires. In late August, he finally relented somewhat and sent the Brazilian military to the area to fight the blaze.
Image source: Bloomberg / Contributor / Getty
Why the Amazon is burning: Climate change
The deliberate blazes set by Amazon developers, loggers, and farmers is unquestionably being aggravated by global climate change: The rainforest is drier now. There have been three "droughts of the century" lately, in 2005, 2010, and from 2015 to 2016. This feels alarmingly like the first phase of the dieback scenario.
Even without a dieback, a proliferation of fires may be the New Normal as the Earth heats up at an accelerating rate. While some advocate the planting of new trees as a way of slowing down the worsening of the situation, it's obvious that we may eventually find ourselves providing more dry kindling.
According to images taken from satellites, the Amazonas state of Brazil is the most affected area, though Rondônia and Mato Grosso are also battling fires.
The fires in Brazil and the dispersal of their smoke.
Image source: European Centre for Medium-Range Weather Forecasts
What you can do
Aside from watching from afar in horror, it's difficult to know what to do. Charity Navigator has assembled a list of five of the best organizations to which you can contribute to help save and restore this area so critical to our own survival:
The first wave of the retailer's anticipated automated delivery fleet hits the sidewalks.
- After testing near company HQ, delivery robots are rolling up to random customers' homes in Irvine, CA.
- The cute little carriers — dubbed "adora-bots" — are already adept at navigating people, pets, and other tricky obstacles.
- These may be the droids the shipping industry seeks.
If you happen to be walking down a quiet sidewalk in Irvine, California, don't be too surprised to encounter a little blue robot with "Prime" — as in "Amazon Prime" — printed on its side. It's an Amazon Scout robot.
There are currently a "small number" of the all-electric, six-wheeled beasties rolling around town. They're accompanied for now by human Amazon Scout Ambassadors keeping an eye on the bots and answering customers' inevitable questions.
These "adora-bots," Amazon's term, are the online retailer's first foray into real-world deployment of a robotic delivery system. Depending on how effective they are — and how Amazon customers perceive them — these little autonomous droids could represent the leading edge of nationwide robotic delivery. At least in places with sidewalks.
Not their first rodeo
Does the Scout beep when it arrives at its destination? Does it bleep or bloop?
Amazon Scouts were developed in the company's Seattle labs, and first tested near Amazon's headquarters beginning in January 2019. Six of them have been delivering packages in Washington's Snohomish County in daylight hours and all sorts of weather. Being similar in size to largish rolling ice-chests, they're capable of delivering any package fits.
Amazon reports that the Scouts have been making friends along the way — they cite "Winter the cat and the excitable Irish terrier Mickey" in Washington. While the robots need to be able to cross streets and avoid moving vehicles, safely getting around on sidewalks represents an even more difficult technological challenge. Though streets are fairly ordered spaces with lanes and rules, any given sidewalk can be the Wild West, with unpredictable humans — including fast-moving children — and animals, as well as random obstacles such as garbage cans and recycling bins, moving skateboards, and so on. So far, there haven't been any major problems, which is impressive.
A Scout comes to call
Bleep, bloop! Coming through! Image source: Amazon
For Irvine's test program, Amazon is handing out delivery assignments on a random basis, regardless of the delivery option a customer selects at purchase. A big question Amazon's trying to answer is how well the public will respond to Scouts. Right now, encountering a Scout at the end of one's door must seem odd — in Amazon's video, even the actor seems a little unsure about whether she should say "thank you" or something else as she retrieves her package.
It's likely that we'll get used to seeing automated delivery vehicles rolling and buzzing around in time, and that's part of what Amazon is keeping their human eyes on.
That tricky last mile
No matter how streamlined the process of shuttling a package from one city to another has become, there's still the bottleneck at the end of the trip: A driver exiting their truck on foot and manually carrying a package to a door, and then walking back to the truck. In an industry where every second and penny counts, this last-mile segment has been a source of industry frustration.
Delivery bots that run continuously in their routes — continuously shuttling goods without lapses — could provide the solution, assuming the technology is reliable, cost-effective, and customers grow accustomed to dealing with droids. The popularity of automated assistants such as Alexa, Siri, and Cortana suggests consumers are moving in that direction. As far as the economic equation goes, these are early days, with lots of research and development costs to be absorbed as the technological and human interaction bugs are sorted out.
The strike is poised to happen on Amazon's upcoming "Prime Day."
- Amazon workers at a Minnesota fulfillment center organized the strike, which is expected to last 6 hours on July 15.
- The workers consist mainly of East African Muslim immigrants, who've clashed with the company in the past.
- Amazon, Target and Walmart are all racing to offer customers the quickest shipping, a move that will likely worsen worker conditions at fulfillment centers.
Amazon employees at a fulfillment center in Shakopee, Minnesota, plan to go on strike for six hours on July 15, the first day of the company's promotional Prime Day.
The workers — led mainly by East African Muslim immigrants — want Amazon to ease productivity quotas and convert more part-time workers into permanent employees. They hope to use the publicity of Prime Day — a two-day event during which Amazon offers deep discounts — to raise awareness about what they perceive to be unsafe and unjust working conditions.
"Amazon is going to be telling one story about itself, which is they can ship a Kindle to your house in one day, isn't that wonderful," William Stolz, one of the Shakopee employees organizing the strike, told Bloomberg. "We want to take the opportunity to talk about what it takes to make that work happen and put pressure on Amazon to protect us and provide safe, reliable jobs."
It's not the first time workers in the Twin Cities area have clashed with Amazon. In 2018, Amazon workers chanted "Yes we can" in Somali and English, demanding things like reduced workloads during Ramadan.
Amazon granted some of these wishes — by, for instance, relaxing quotas during Ramadan and converting a conference room into a prayer space — but some workers still feel the general productivity quotas make the job unsafe. In March, workers went on a three-hour strike, according to Bloomberg. A complaint against Amazon, filed with the federal government, claimed that the company retaliated against those striking workers by docking their allotted unpaid time-off hours — a move that might have violated federal law.
"It's a violation of labor law when an employer punishes workers for striking, and one way of punishing workers for striking is to take some of their leave away," Seattle University law professor Charlotte Garden told Bloomberg.
NurPhoto / Contributor
Amazon, which in 2018 raised its minimum wage for warehouse workers to $15 per hour, responded by saying it's already met most of the Minnesota workers' demands.
"The fact is Amazon offers already what this outside organization is asking for. We provide great employment opportunities with excellent pay – ranging from $16.25-$20.80 an hour, and comprehensive benefits including health care, up to 20 weeks parental leave, paid education, promotional opportunities, and more. We encourage anyone to compare our pay, benefits, and workplace to other retailers and major employers in the Shakopee community and across the country – and we invite anyone to see for themselves by taking a tour of the facility."
The upcoming strike would come just months after Amazon announced one-day shipping, an offer that would likely only worsen tensions between the company and its warehouse workers.
"With two-day Prime shipping, Amazon fulfillment workers currently face speeds of 200-300 orders per hour in 12-hour shifts," Stuart Appelbaum, president of the Retail, Wholesale and Department Store Union, wrote in a statement. "They struggle already to maintain that pace. If Amazon plans to effectively double the speed, it must also address existing workforce needs and ensure its workers are safe. Increasing fulfillment speeds means they need to hire more workers, under more sustainable speeds that don't put worker's lives in jeopardy."
Walmart and Target have also begun to offer next- and same-day shipping in some form. Along with Amazon, these major retailers are locked in a battle to see which company can provide the quickest shipping, and this battle is unlikely to end anytime soon. So, as long as they continue to battle, and as long as customers continue to choose quick shipping, worker conditions at fulfillment centers are unlikely to improve much.But then again, political pressure could do the trick. After all, Amazon's move to raise fulfillment center workers' minimum wage to $15 came after repeated criticism from Sen. Bernie Sanders (I-VT).