Labor shortages, supply-chain disruptions, and other challenges such as commodity prices and out-of-stock issues have all impacted sellers and brands this quarter. Furthermore, eCommerce traffic and sales have shown some slowing with more vaccine availability and people returning to stores during the back-to-school season with several brands indicating that the return to stores was stronger than expected. Let’s look at what’s causing these challenges and how advertisers can plan accordingly to deal with the market.
Supply Chain Challenges
Labor was Amazon's "primary capacity constraint" in its most recent quarter, forcing the company to redirect inventory to fulfillment centers with enough employees to handle the products, CFO Brian Olsavsky said on its Q3 earnings call. Widespread labor supply shortages span from warehouse workers to tech workers. Amazon and other warehouse employers are boosting wages (seasonal roles offer an average starting pay of $18 per hour), introducing sign-on bonuses up to $3,000, and offering other incentives to draw in potential workers. However, higher wages haven't been a cure-all for many employers.
FedEx had to divert packages in its Ground network to get around its labor crunch. Some companies are leaning more on automation to handle redundant inventory tasks.
Amazon maintains that it’s investing across its supply chain to deliver for customers this holiday season. “At Amazon, preparation for the holiday season begins on January 1. From that moment on, our teams work hard to meet our customers’ needs for the holidays ahead. We’ve hired even more people and invested in technology to help us better predict what products our customers will want—and where and when they’ll want to receive them” said John Felton, Senior Vice President of Global Delivery Services at Amazon.
Challenges Facing Sellers
Supply chain workers have had to deal with quarantines, travel restrictions and Covid-19 vaccination and testing requirements to ensure supply chains kept moving all throughout the pandemic. However, many are now reaching their breaking point, which poses another threat to the network of ports, shipping container vessels and other transportation companies that help move goods globally. All of this has greatly impacted profitability due to higher commodity prices and overall cost of goods sold being driven up.
Inventory shortages remain a huge issue due to commodity shortages, impacted production from factories being shut down, and shipping and port challenges, such as ships are still sitting off ports of Long Beach and Los Angeles, preventing much of the supply from getting into fulfillment centers in a timely manner. The fragile supply chain has also seen overall delivery problems persist due to labor shortages, which is causing a lack of truck drivers to make these deliveries or fulfillment center employees to fulfill orders at the Amazon fulfillment centers.
Managing Supply Chain Constraints
There are several actions sellers and brands on Amazon can do to address the challenges caused by this global supply chain crisis.
- Ship it early – One seemingly obvious solution to alleviate headaches is to ship out your products early, and to run your Black Friday, Cyber Monday, and holiday deals earlier this year. Don’t forget to hit key FBA delivery dates for the 2021 holiday season. Your inventory should be at the Amazon Fulfillment Center by December 11 to ensure your products are available to customers during Christmas and the peak selling season.
- Bidding and selling based on inventory – In order to remain profitable and prevent items from going out-of-stock, you may want to optimize your bidding strategy and look closely at the amount of inventory that you have on hand to best approach this year’s expensive holiday season. If you are low on inventory, then be ready to take action by lowering bids on those keywords advertising your products with inventory status. Or you may opt to pause products that have low inventory or based on “weeks of inventory on hand” so you are not promoting items out of stock. Read more about how to use Pacvue during inventory challenges here.
- Selling based on profitability – Cross-selling strategies are exceptionally important this year. Identify which products are more profitable to sell at this rocky time, and then develop a cross-selling strategy to best target the sale of those items. Promote hero ASINs with Sponsored Display and Sponsored Brands ads and then follow through with retargeting to complementary products after the holiday season.
- Channel differentiation – By diversifying your eCommerce strategy and the platforms where your products are purchased (such as Instacart, Target, and Walmart), you may find that channel differentiation is a smart way to reach new audiences and increase your sales. Here’s a great article on how brands can add more budget fluidity to their eCommerce strategies while exploring the idea of selling on more platforms.
With 2022 quickly approaching, brands are facing heightened challenges in areas such as supply chain and commodity prices, causing out-of-stock issues, declining profit margins, and general headaches. The year ahead is going to be one of constant change, but the brands that build a foundation of long-term growth will be the ones that win.
To help you with your 2022 planning, Pacvue has put together a free guide to help you prepare for another transformative year in eCommerce. In this guide, we’ll walk through six key strategic areas to focus on now to set yourself up for success in the year ahead, including growth drivers, budget fluidity, reporting, best practices, practical planning tips, and new features to leverage across marketplaces.
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