Merchants reliant on China could lose vital product rankings if
items are out of stock
By Jon Emont
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 27, 2020).
Thousands of Amazon.com Inc. sellers who built their businesses
using China's cheap and efficient manufacturers are on the spot as
the coronavirus shuts factories there.
Sellers say Amazon's ranking algorithm demotes products that are
out of stock. To avoid that painful fate, many are raising prices
to slow sales, and attempting to shift production to other
countries.
Larger corporations like Apple Inc. also face difficulties in
getting goods made on time in China. But merchants say that as
small buyers they will be low on the list for merchandise when
production eventually revives. And once stock is replenished, they
say they will need to spend big on advertising to regain their
Amazon rankings, which make products appear higher in site
searches.
"I don't think the Amazon platform has seen such a massive
amount of inventory problems as we are about to see," said Patrick
Maioho, a Michigan seller of kitchen products who also advises
others on manufacturing in China.
Mr. Maioho said a supplier in southern China warned him that
even if the local government allows its factory to reopen, it will
be short-staffed for weeks while workers from other provinces
self-quarantine. He recently ran out of two products that account
for 30% of his monthly revenue, and said his product rankings are
dropping on Amazon.
"There's not much you can do," he said, adding that it would be
difficult to move production elsewhere.
There is some good news, though: One supplier had excess
inventory from his last order, which Mr. Maioho said will keep him
in stock for that product for a few weeks longer.
The third-party marketplace accounts for more than half of
Amazon's retail sales, and a growing share of sellers are based in
China, according to Marketplace Pulse, a data research firm.
Amazon said it had already worked with suppliers to secure
additional inventory and provided sellers with guidance on
protecting the health of their accounts on the platform. It said
product availability is just one of many factors it considers when
displaying shopping results for customers on its website.
Chris Davey, a British seller of audio products based in
Shenzhen, generates more than $1 million in annual revenue via
Amazon. He said he is checking in with his suppliers regularly --
mainly to see how they are coping with the public-health emergency.
The hope is that when production restarts, "they remember who we
are and that we're the people that asked how is your family, not
where are our orders," he said.
Some Amazon merchants are approaching smaller competitors to see
if they will part with extra inventory. Others are seeking out U.S.
wholesalers with excess stock. That is costlier than buying
directly from factories, but may be cheaper than selling out and
having to effectively relaunch products later.
To preserve stock, many sellers are pulling online advertising
campaigns as well as raising prices.
"The worst thing that can happen in a product business is you
run out of stock," said Michael Michelini, a partner at Alpha Rock
Capital, which manages around 10 brands on Amazon. "You're never
really sure your ranking will come back the way it was."
Mr. Michelini said his company has been raising some prices.
Though it bought large quantities of many bestselling items ahead
of the Lunar New Year, he said, some office-supply and
shoe-accessory products could sell out within weeks.
"March will be breaking people," he said.
It can be difficult for small companies with specialized
products to quickly move manufacturing out of China, said Nathan
Resnick, chief executive of Sourcify, which helps businesses find
manufacturers in Asia. He has helped connect Amazon sellers with
alternative suppliers in India and Vietnam, he said, but
manufacturing costs outside China can be much higher, and factories
in Vietnam often won't accept small orders from Amazon sellers.
Garland Sullivan, whose Jacksonville, Fla.-based Amazon business
sells an average of $350,000 a month in multiple categories, with
many products made in China, said he could be out of some goods as
soon as early March. In a last-ditch bid to prevent that, he began
making one product in India this month and is in talks to have
others made there as well. In the future, he says he will try to be
less dependent on China.
"It's a big wake-up call right now," he said.
Some sellers are already starting to worry about inventory for
the holiday season -- the most-important few months of the year --
which requires a long lead time.
"Fourth-quarter planning usually happens now," said Eddie
Levine, president of Hub Dub Ltd., which sells toys and housewares
under its own and other brands. "With a big unknown on China,
everyone is on edge."
Dana Mattioli contributed to this article.
Write to Jon Emont at jonathan.emont@wsj.com
(END) Dow Jones Newswires
February 27, 2020 02:47 ET (07:47 GMT)
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