Cutting prices. Adding coupons. Amazon sellers see ‘scary’ holiday season as consumers pull back
Many merchants, who sell more than half of the goods through Amazon’s web store, fear they’ll be forced to cut prices to move a mountain of inventory. It’s an abrupt change from the previous two years, when sellers scrambled to get enough products into Amazon warehouses to meet pandemic-fueled demand even as chronic shortages let them jack up prices.
This year, U.S. online sales will rise just 9.4% to $1 trillion, the first time growth has slipped into the single digits, according to Insider Intelligence, which in June lowered its earlier annual forecast. Spending on Amazon will hit $400 billion, up 9% and slower than the overall industry, the research firm says.
“Consumers don’t seem to be spending much on anything beyond basic necessities, so sellers have to offer discounts and coupons and aggressive marketing, which can be expensive,” said Lesley Hensell, a co-founder of Riverbend Consulting, which advises Amazon sellers. “The fourth quarter looks scary this year.”
The challenging holiday shopping season was the primary topic this week at the Surge Summit, an e-commerce networking event hosted by Hensell’s firm that drew about 300 sellers to Tampa, Fla. During a session called “Navigating the Bear Market as a Seller,” dozens of merchants discussed the abrupt shift in consumer behavior and how to adjust their businesses accordingly.
Rogue sellers order Dum Dums from Sam’s Club and resell them at a markup, undercutting Spangler Candy Co. on price and violating Amazon’s policy.
Korion Morris, who ran the bear-market session, is the director of growth at Unybrands, which owns e-commerce companies in such categories as baby, fitness and personal care. He told attendees that Unybrands is trying to hold the line on prices by cutting logistical and other costs.
“Consumers are hurting right now,” Morris said during the event. “In the rare instances we do increase pricing, we’ll add a promotion to offset it.”
Amazon itself is being forced to adjust to the new normal. The world’s largest e-commerce company was saddled with too many warehouses and workers when the pandemic boom ended.
Amazon has since abandoned dozens of existing and planned facilities around the U.S., according to the research firm MWPVL International Inc. Some of the closings are related to a modernization program, an Amazon spokesperson said, and the company continues to open facilities where customer demand requires extra capacity.
Responding to merchants’ concerns about a lackluster holiday shopping season, an Amazon spokesperson said sellers using the company’s logistics service typically pay less than other methods. Amazon has also expanded a program offering low shipping costs on inexpensive items to include products weighing as much as 3 pounds; previously the limit was 12 ounces.
Buy Nothing Project group members may be among the few who aren’t worried about supply chain problems leading to issues with gifts this holiday season.
“Sellers are incredibly important to Amazon, and we work every day to provide them with powerful tools and services that help reduce their operational burdens, build their brands and connect them with customers so they can rapidly grow their businesses through busy shopping periods and beyond,” spokesperson Patrick Graham said in an emailed statement.
Meanwhile, merchants are making their own moves to cut shipping costs.
Marlee Rabin of Montreal launched her organization brand Homie Collection on Amazon two years ago and her best seller was a $25 transparent plastic pantry bin. She’s preparing to launch a smaller kitchen organizer this year that she expects to sell for less than $10. Besides targeting cost-conscious shoppers, she says, the smaller, lighter bin will save her a bundle on Amazon storage and shipping fees.
“I’d love to charge premium prices,” she said. “But in this environment I think I’ll do a lot better at the lower price point.”
The effects are rippling from sellers to firms that support them, including small-business lenders. An Amazon merchant commonly borrows about $100,000 to buy inventory and pay for marketing campaigns during the holidays, paying the loans off with their proceeds.
Instant soup mix, dresses, sneakers, appliances and so on. Buy common consumer items cheap; resell for more, maybe much more. COVID lockdowns supercharged it.
Seth Broman, chief revenue officer of Swiftline, which offers loans to online merchants, is turning down more loan applications this year. Rising costs and slower growth has simply made lending sellers money too risky, he said.
“A lot of customers are over-leveraged, and their sales are off,” Broman said.
Even the smallest merchants are feeling the pinch.
Nancy Philips sells used books on Amazon that she snags at yard sales and library clearance sales. She’s slashing prices on about 100 books that have been lingering in Amazon warehouses for about a year before her storage fees go up. Amazon increases storage fees on products that don’t sell quickly to prevent its warehouses from getting cluttered.
“Books I’d sell for $20 I marked down to $10 or less,” she said. “Amazon fees are about $8, so I won’t make any money. I need to get rid of them, and people are buying less.”
Secretive members clubs became even more in demand during the pandemic with their promise of a full-lifestyle day-to-night experience that combines co-working and socializing under one stylish roof.
Steven Pope, who has been selling gifts on Amazon for seven years, said he’s never been more nervous about a holiday season.
Sales of his $50 “mom box” that includes a bath bomb, soaps and lotion, plunged more than 50% this Mother’s Day compared with a year earlier. The Atlanta-based seller fears a similar drop heading into Christmas because shoppers are focused on necessities such as food and gas and have less money for indulgences.
“The gift-giving industry has completely collapsed,” said Pope, who is developing new snack products to compensate for slowing gift sales.
Pope, who also provides consulting services to more than 300 merchants, recently changed his marketing slogan to reflect leaner times. Before it was “We grow sales.” Now it’s “We deliver peace of mind.”
“It’s very difficult to navigate the climate right now,” he said. “This will be a make-or-break year for a lot of businesses.”