Amazon’s rivals Walmart and Target gained ground on the e-commerce giant during the pandemic
Its share of U.S. e-commerce fell to 38.5 percent in June from 42.1 percent in January, according to data from Rakuten Intelligence. In April, it hit a low of 34.2 percent. At the same time, Target’s share grew from 2.2 percent to 3.5 percent and Walmart’s grew from 4.2 percent to 5.0 percent.
Amazon reported a 40 percent surge in revenue Thursday to $88.9 billion, part of an overall rising tide in online sales amid the pandemic that has benefited retailers across the board. But its slip in market share in comparison with other retailers reveals an unexpected fickleness in consumer habits.
Mike Mastela, a cloud security specialist in Livonia, Mich., who used to buy everything on Amazon Prime, has started opting for same-day pickup from Target for items such as undershirts and dog food. “I’m honestly thinking about dropping my Prime membership simply because I have yet to see a two-day delivery in months,” the 67-year-old said.
More than a dozen interviews with warehouse workers, third-party sellers, current and former executives, and retail experts painted a portrait of a company renowned for its wealth of consumer data and logistics expertise scrambling to adapt and recover from the coronavirus crisis, even months into it.
“It was a shocking display from a company that built itself up as a distribution company,” said Paula Rosenblum, an analyst for Retail Systems Research in Miami. “When the rubber met the road, they couldn’t get the products people wanted.”
Chief executive Jeff Bezos acknowledged as much during his testimony Wednesday before a House subcommittee looking into claims that Amazon, Apple, Google, and Facebook have abused their dominant positions as tech leaders to thwart competition. Asked if Amazon designated devices such as its Fire TV, Echo speakers, and Ring doorbell as essential items at the start of the pandemic, giving them the same sort of shipping priority as a disinfectant and toilet paper, Bezos said he didn’t know.
“What I can tell you is that we had there was no playbook for this,” Bezos said. “We moved very quickly. Demand went through the roof, (and it) was like having a holiday selling season but in March, and we had to make a lot of decisions very rapidly.”
The company is “balancing capacity across our network of fulfillment centers while ensuring we’re meeting social distancing and safety measures to keep our teams safe,” spokesman Dan Perlet said in a statement. He said the company is moving quickly to restore delivery speeds.
Amazon declined to make senior executives available for interviews.
Former and current Amazon executives who spoke on the condition of anonymity because they weren’t authorized to speak publicly say no company could fully prepare for the crush of orders stemming from a global pandemic. Amazon spends six months preparing for inventory needs for the holidays, then three staffing up. The pandemic gave Amazon no time to prepare while snarling supply chains and scaring warehouse staffers who often work side by side with colleagues.
Of course, Amazon’s revenue has continued to grow in recent months amid a surge in online shopping as people stay home and many stores remain closed. But the company lost an opportunity to extend its lead over rivals.
All of the executives said they expect Amazon to eventually regain its footing as shoppers edge back toward patterns that were in place before the pandemic when the digital marketplace was often the first stop for online shoppers. And its market-share dip appeared to bottom out in June at 34.2 percent, according to Rakuten.
But even several months into the pandemic, Amazon still cannot always deliver packages to its Prime customers within two days. And its annual Prime Day marketing event — typically held in July — will take place in the fourth quarter for most of the world, executives said on the company’s earnings call Thursday.
While a return to one-day shipping is improving, “we’re not back to where we were pre-COVID,” CFO Brian Olsavsky said on the call. “We don’t think we’ll be back in the short run.”
As the coronavirus spread and local and state governments ordered people to stay home, Amazon’s logistics empire broke down. The vast network of hundreds of warehouses, return facilities and distribution stations, connected by vans, trucks, and airplanes owned by Amazon and its partners, had previously enabled Amazon to deliver orders within a day or two to shoppers who signed up for Prime, which now counts more than 100 million members globally.
Since March, Amazon’s 23-person senior leadership team has been holding virtual meetings every few days to brainstorm responses to the company’s supply chain and labor challenges, said a person familiar with the meetings who was not authorized to discuss them publicly and commented on the condition of anonymity.
The system was buckling under the weight of orders that had surged as though every day was Black Friday. But Amazon had not hired the tens of thousands of warehouse workers it typically does for the holidays. By April, the company had announced it would hire 175,000 new employees, pushing its total global workforce to 840,400.
But at first, work in the warehouses was not adapted for the virus, which emerged in some of its locations in Italy and Spain by mid-March and days later in its U.S. warehouses, from New York to California and Michigan to Texas. Amazon initially continued to hold meetings at the start of each shift, discussing safety precautions while scores of workers stood shoulder to shoulder, according to interviews with workers. It continued to press warehouse staff to meet the rate at which it wanted workers to fulfill orders.
Amazon eliminated stand-up meetings during shifts in favor of new communication methods such as signboards and text messages, and began staggering shift start times and break times to reduce congestion, the company said March 24. Workers said the company suspended requirements to fill orders within time limits after complaints that tallying those metrics discouraged sanitary practices such as washing hands after sneezing.
Warehouse workers pressed for paid time off for employees who felt sick or needed to quarantine, and for the temporary closure of warehouses where workers tested positive, so the facilities could be cleaned. Workers protested and complained that Amazon was not doing enough to protect them; the company countered that it was following public health guidelines.
As the company’s woes became more public, executives scrambled to come up with a plan. Workers in its headquarters were reassigned to work on safety, handling tasks such as procuring masks, developing screening systems, and setting up testing labs. Amazon cut the number of warehouse workers loading parcels onto trucks from two to one to better allow social distancing.
“People’s only job became how to keep workers safe,” said one of the former executives, who requested anonymity because the person still does business with the company.
But the safety changes heightened delays. Amazon still struggles to get packages out of its warehouses at pre-pandemic rates.
In late May, in its warehouse in the Seattle suburb of Kent, Amazon showed off its reconfigured break rooms, spreading tables out to encourage social distancing. The warehouse floors were dotted with hand sanitizer stations, and tape marked directions employees should walk so as not to create bottlenecks.
At some, but not all, of its warehouses, Amazon has resumed pushing workers to meet specific targets for the speeds at which they stow, pick and pack items, according to workers at warehouses in New Jersey, Michigan, and California. Amazon’s Perlet disputed that but didn’t say whether the company tracked speeds at all its warehouses.
Regardless, the pace is brisk, and the company is pushing workers to log long hours as though every day is Prime Day, said Rachel Belz, who stocks shelves at Amazon’s West Deptford, N.J., warehouse.
“They’re just not calling it that. But we’re all working extra,” said Belz, who is logging 55-hour workweeks now, up from the 44-hour weeks she normally works.
For consumers, the delays in getting products were only partly caused by the unexpected flood of orders and warehouse processes. Many goods were also out of stock. On March 17, Amazon told sellers they could no longer ship nonessential goods to its warehouses, effectively forcing them to ship the items to consumers themselves if they hoped to register sales. And it delayed shipping on products not deemed crucial, leaving consumers with long waits.
Many of the items that were in short supply at the start of the pandemic, such as toilet paper and liquid hand soap, are readily available on the site now. But Amazon shoppers still have a hard time finding Purell hand sanitizer and Lysol disinfectant wipes. Given the demand, manufacturers are allocating supplies, which often means Amazon can’t keep the items in stock, Perlet said.
More than half of the retail sales on Amazon are from third-party merchants who sell at the company’s digital bazaar. Amazon’s emphasis on essential items forced many sellers to take on their own shipping, a task many were ill-equipped to handle. That caused so many struggles that shoppers’ negative reviews for third-party sellers are at record levels, according to the e-commerce research firm Marketplace Pulse.
As Amazon’s selection dried up or got delayed, consumers turned to competitors such as Walmart and Target and placed online orders for pickup at the chains’ stores. They have combined 6,600 stores nationwide. Amazon has about 560 stores, the vast majority of Whole Foods Markets.
Amazon has lost some customers like Jade Wang, who used to do almost all of her shopping on the site. She grew frustrated in March at the lack of basic items such as paper towels and disposable gloves and delayed or canceled orders.
So Wang, who lives in Austin, turned to Target, Office Depot, Chewy and AliExpress instead, as well as smaller online shops.
“At the beginning of the pandemic, it was item availability that drove me to other retailers,” said Wang, 36, who runs the start-up program at Cloudflare, a website security company. Four months later, she says, she is “relying a lot more on Target because their shipping is fast.” Plus, she can opt for same-day delivery.
Amazon’s rivals fared better in large measures, experts said, because of one distinct advantage: physical stores spread across the country. Walmart customers, for example, were able to order some items online and have them dropped into their trunks at local stores the same day, offering more-reliable selection and faster delivery.
Walmart moved quickly to offer “contactless” pickup and delivery options. By April, it had rolled out two-hour express deliveries from many of its 4,750 U.S. stores and had hired more than 150,000 workers to stock shelves, pick groceries and handle pickup orders.
Walmart’s U.S. e-commerce sales grew 74 percent in the three months ending May 1. Online sales at Target, meanwhile, have more than doubled during the pandemic, with e-commerce growing a record 282 percent in April alone.
“We’ve just seen Cyber Monday occur almost every day, except the volume is twice the size,” Brian Cornell, Target’s chief executive, said in an earnings call in May.
Target now fills about 80 percent of its online orders from its 1,900 stores. When the pandemic hit, the company quickly doubled the number of workers at its same-day home delivery service, Shipt, from 100,000 to 200,000 and rerouted merchandise to the stores that needed it most.
More than 5 million shoppers used the company’s drive-up pick up service during the first quarter, with drive-up orders — the company’s most popular service — increasingly nearly 1,000 percent in April from a year earlier, John Mulligan, Target’s chief operating officer, said in the earnings call.
Some of that growth was cannibalized from in-store sales, Robert W. Baird & Co. analyst Colin Sebastian said, as loyal Walmart and Target shoppers switched from in-store to online shopping. Sebastian is bullish on Amazon and believes the company has stabilized its logistics operations.
Still, he added, “Amazon is typically the disrupter. And in this case, Amazon was disrupted.”