Amazon merchants curtail ad spending amid virus

Bloomberg

Chuck Gregorich, who sells China-made patio furniture on Amazon.com Inc expects to lose as much as $2 million in sales this year due to factory closings and other coronavirus-related slowdowns. So he’s cutting his ad spending on Amazon and thinking about raising prices to avoid running out of inventory. The sudden shift in sales tactics by merchants like Gregorich threatens Amazon’s fastest-growing and profitable revenue source.
“If we’re going to run out, why not run out at full price,” he says. “We have to make sure the sales we have are as profitable as they can be.”
Amazon merchants spent about 6% less on advertising over the past two weeks than they did a year ago, says Daniel Knijnik, who runs Quartile Digital, a New York firm that helps manage Amazon advertising for 2,300 brands selling goods on the site.
Many of them are small outfits forced to react more quickly than big brands selling to the likes of Walmart Inc and Target Corp, he says, because they lack the inventory stockpiles and alternative suppliers their larger counterparts can draw on.
Amazon’s advertising sales are a small piece of overall revenue, but they help the company offset the huge costs of storing and shipping millions of products. In the holiday quarter, what Amazon calls “other” revenue—most of which is advertising—totalled $4.78 billion, up 41% from a year earlier.
Like many of its tech industry peers, Amazon started 2020 predicting strong sales growth. Now mounting fears of a pandemic and the related economic fallout has put those rosy projections in question. Amazon’s shares have dipped 5.9% so far this week, tracking the decline in the S&P 500 Index. The falloff in advertising could be a harbinger of worse news to come.
Amazon last month forecast sales of $69 billion to $73 billion in the current quarter and has not adjusted that outlook in response to the coronavirus. “We are monitoring developments related to COVID-19 and taking appropriate steps as needed,” Amazon said in an email, using the official name for the virus.
The company is taking other previously unreported measures to soften any virus impact for smaller sellers.
Amazon advised merchants that they could put their accounts in “vacation status” to avoid getting penalised by its algorithms if they suspected items would run out of stock. It also instructed merchants to cancel any customer orders they would not be able to fulfill.
“If your performance metrics have been impacted by this event, please include a brief description of how your business was impacted when you respond to the relevant performance notification,” Amazon said in a notice.