How Covid-19 Has Affected Amazon
By Udita Gulati
COVID-19 has drastically changed the dynamic of businesses and the economy. Ecommerce is a sector that has experienced an interesting impact due to how consumer behaviour has adapted in response to the world-wide lockdown. Consumers have turned to online shopping in order to fulfil their needs from home. Businesses that cater to essentials in the healthcare industry such as facemasks and hand sanitizers, and online grocery shopping have experienced a dramatic spike in demand. Amazon is a company that has strategically taken advantage of this consumer demand and reacted accordingly to make provisions for these new needs.
Negative impacts of COVID-19
According to Fortune, Amazon was met with an enormous upsurge of orders as customers resorted to online shopping to acquire essential supplies. It had to enlarge its workforce and recruit an additional 175,000 employees in order to meet these demands. Subsequently, the company faced a labour crisis as workers complained about the lack of adequate safety measures in warehouses. Amazon was quick to implement stronger precautions to keep its employees safe, and hence had to increase its costs. It spent US$4 billion on protective equipment, COVID-19 testing, and increased salaries for frontline workers.
In addition, Amazon’s USP of prompt delivery was impaired – especially for Prime customers who specifically signed up for one day delivery – thus hurting its reputation. The surge of orders consequently caused its sellers to suffer. For a period of time, Amazon was forced to prioritise medical supplies and household staples at its warehouses. It temporarily discontinued FBA (Fulfilment By Amazon), a service that aids sellers with shipping logistics by sending products directly to an Amazon warehouse, for sellers with nonessential items. Small businesses, that make up 58% of its third-party sellers, were especially vulnerable due to this decision as they struggled to cut costs and re-evaluate their business plans. This left third-party sellers feeling helpless as Amazon failed to provide them with a contingency plan.
Positive impacts of COVID
Amazon braved these initial challenges by tackling the issues COVID-19 posed and has, as Time believes, emerged stronger than ever. It announced record sales and profit in spite of the world being in a pandemic. Its website traffic jumped to 2.54 billion visits in March and its revenue increased by 40% compared to a year before from US$89.9 billion to $122 billion.
As brick-and-mortar stores were forced to shut down, consumers turned to Amazon’s diverse online marketplace to satisfy their needs. After Amazon resolved its operational strain and lifted the restrictions on FBA, customers began to increasingly rely on the wide array of products that could meet their needs in a speedy fashion. Economies of scale and efficiency have allowed the company to quickly adjust to the new external business environment – which works as the catalyst for moving past COVID-19 hurdles faster and stronger than its competitors.
Not only did Amazon’s B2C model progress, but the B2B model also experienced growth. The company’s cloud business, Amazon Web Services (AWS), faced a higher demand as companies such as Netflix, Zoom, Facebook, Twitter, and Epic Games (developers behind Fortnite) that run on AWS faced a surge in traffic as people spent more time indoors. The rise in working and studying remotely resulted in the demand for cloud services to substantially increase. Amazon’s Twitch in particular has been popular in the digital entertainment industry as professional basketball and football players now stream themselves playing video games due to the hiatus live sports has taken.
How might COVID affect Amazon’s future?
As the pandemic prevails, Amazon will continue to reap the benefits of changing consumer habits becoming increasingly dependent on technology. As users spend more time online, they could be inclined to subscribe to other Amazon services such as Prime Video or Audible. The diversity of its product portfolio, ability to continually meet consumer needs, and methods of excelling in its supply chain management – amidst one of the most trying periods businesses have ever faced – bolsters its aggressive hold on customers and aggressive position against rivals.
That being said, this power comes with its own predicaments. Amazon founder and CEO Jeff Bezos has had to previously partake in an investigation regarding online platforms and market power wherein he was questioned if “in the age of Big Tech, how big is too big?”. Amazon’s drastic growth may push the firm further in this undesirable direction. Its increasing market share and the world’s dependence on it alarms policymakers and makes them question whether the company is too powerful and thus behaving in a monopolistic and anti-competitive manner.