First, the good news. This holiday season will be great for e-commerce. It’s no secret that online shopping has soared during the pandemic. The Department of Commerce announced in August that U.S. e-commerce sales jumped 31.8% from Q1 to Q2 this year, accounting for 16.1% of all retail sales (estimates for Q3 are scheduled for release on November 19, 2020). From a broader view, this is a 44.5% increase in digital sales from Q2 of 2019.
By all accounts, this accelerated growth will continue into the holiday season – largely due to COVID-19. Social distancing, stay-at-home mandates, in-store capacity restrictions, and fear of contagion have all contributed to the rise in e-commerce. With fewer people visiting brick and mortar stores, more brands are shifting their focus to online sales. For the first time in years, many retailers have announced they will be closed this Thanksgiving, including:
- Bed Bath & Beyond
- Best Buy
- Dick’s Sporting Goods
- Foot Locker
- Hobby Lobby
- Sam’s Club
All of this points to a promising holiday season for online shopping. Unfortunately, this isn’t the full story.
Amazon Fulfillment Challenges for this Holiday Season
While COVID-19 has helped create new digital customers, it’s also created new challenges for brands. As the largest e-commerce platform in the country, Amazon is experiencing more demand than it can handle. In response, they’ve implemented new sanctions that restrict both the quantity of items and the volume of inventory space allotted to many FBA sellers. The company announced in July that FBA sellers need an Inventory Performance Index (IPI) score of at least 500 (increased from 400) to avoid potential storage restrictions and additional fees in Q4 of 2020.
It’s also harder to get inventory into Amazon fulfillment centers. Increased volume, staff shortages, and social distancing guidelines have caused significant delays in both shipping and receiving. According to reports, it’s taking retailers an average of 1.5 days longer to fulfill orders since the outbreak of COVID-19. Once the orders are finally in transit, delays continue. FBA shipments can now take up to six weeks to be received instead of the typical two-week timeframe. None of this is good for Amazon FBA sellers – especially during the most anticipated shopping season of the year.
The Benefits of a 3rd Party Logistics Backup Plan
Channel Key recommends that brands consider a Fulfilled by Merchant (FBM) backup strategy that will ensure you don’t lose sales due to FBA inventory challenges. This will enable you to continue selling ASINs that are unavailable in FBA by fulfilling these orders yourselves. High-volume retailers with their own warehouse and logistics network can rely on themselves, but smaller companies or those that depend solely on FBA might consider partnering with a 3rd party logistics (3PL) provider.
For a quick overview, 3PL providers offer logistics services such as transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. Keep in mind, there are many types of 3PL providers. Some provide only basic warehousing and distribution, others offer additional value-added services like branded packaging, while turnkey providers essentially serve as the logistics arm of your company.
Choosing the right 3PL provider for a long-term partnership depends on a lot of factors and warrants its own discussion. For the purposes of securing a backup fulfillment option for the holiday season, the most important factor is the ability to streamline orders so that you meet Amazon delivery and tracking requirements. If your brand has a lot of volume, Channel Key recommends partnering with a 3PL provider that utilizes an Application Programming Interface (API) that can connect directly to your Amazon account. This will automate the process of updating inventory, sending orders, and updating tracking. Without an API, you may have to send orders manually to your 3PL provider, which requires more work and increases the opportunity for mistakes. Too many violations of Amazon’s shipping and tracking protocols can lead to your account being shut down.
Channel Key Takeaway | Preparing for Uncertainty
This holiday shopping season will be unlike any other. There will still be plenty of commerce, but it’s certainly not business as usual. While COVID-19 has accelerated online shopping, it has also introduced an element of uncertainty that can bring business to a screeching halt. You may remember back in March when Amazon abruptly suspended inbound shipments to its fulfillment centers for non-essential items. The company resumed shipments three weeks later, but it caused a brief panic and underscores the need for sellers to prepare for unforeseen challenges. Partnering with a qualified 3PL provider can serve as a safeguard against unexpected FBA setbacks during the holidays. To learn more about the pros and cons of different 3PL providers, as well as other strategies that can help protect your Amazon business against the uncertainty of COVID-19, contact us today for a free consultation.