What to Know
- As Amazon been forced to loosen its speedy delivery times in the face of unprecedented demand, smaller e-commerce services have also seen a boom as consumers scramble to find goods online.
- Excess demand has flowed over to small grocery delivery services and other e-commerce sites.
- Amazon is still well-positioned to come out stronger on the other side of the crisis.
Over the nine months Andy Hunter courted investors for his online bookselling business, Bookshop.org, he was repeatedly told it was doomed to be crushed by Amazon.
Three months since its launch with less than $1 million in funding, Hunter said the business has already far exceeded levels he’d hoped to achieve by Christmas. By early May, Bookshop has been selling more than 10,000 books a day to 175,000 customers before spending a dollar on advertising, according to Hunter.
Bookshop’s timing was uncanny. The site, which provides an easy way for independent booksellers to set up online storefronts for delivery orders, launched in beta on Jan. 28. After a steady first five weeks, Hunter said, the business began to take off as stay-at-home orders proliferated across the U.S.
“My goal was to capture 1% of Amazon’s book market and we’re there now; we’re over 1% of their sales,” he said in a phone interview in late April. “I thought it was going to take three years to get there and instead it took 11 weeks.”
While the pandemic threatens to cripple small businesses like book stores and restaurants that tend to rely on foot traffic, it’s also creating opportunities for some online businesses to expand. Bookshop’s early success shows that Amazon may not be the only e-commerce business to come out of the pandemic stronger than before. As the retail giant has been forced to loosen its speedy delivery times in the face of unprecedented demand and inventory shortages, smaller e-commerce services have also seen a boom as consumers scramble to find goods online.
High demand for grocery deliveries
Demand for grocery delivery has spilled over to several smaller services now working to quickly ramp up capacity. Many consumers are seeking to avoid their brick-and-mortar grocery stores, which are some of the last remaining gathering places in many regions.
With open delivery slots for Amazon Fresh and Whole Foods becoming so rare that one coder built a program to alert people to their availability, consumers are now finding alternative services they haven’t used before. Two local delivery services in New York City, Go Organic NYC and Farm to People, have seen a wave of new customers and been forced to rapidly expand their facilities to keep up with the demand.
Prior to the pandemic, Go Organic mainly stocked corporate offices with produce. But with many of their customers now working from home, the company has become an entirely residential delivery service. The shift allowed it to take on hundreds of new customers in the first two to three weeks of the crisis, according to Brian Lai, president and part owner.
Lai said he anticipates many of those customers will return to their grocery stores after the current health crisis passes, but hopes to retain about 15% to 20% who have been introduced to the freshness of local, organic produce.
Farm to People similarly saw its customer base triple over two weeks in March, forcing it to create a wait list so it could catch up to the demand. The wait list ballooned to more than 3,000 customers during a two-week break from letting people into the service.
As of mid-April, co-founder Michael Robinov said, the company had the capacity to build 2,000 food boxes for customers but was looking for additional warehouse space that would bring that capacity up to as much as 7,000.
Robinov said as the company tries to meet the surging demand, his goal is to be transparent about inventory shortages and wait times. He said widespread reports about supply chain challenges seem to be making customers more forgiving than usual of delays and missing items from their orders.
“If Jeff Bezos had to put everyone on Amazon Fresh on a wait list, if they can’t figure it out, it’s really hard for a small company like us to do it perfectly,” he said.
Amazon did not provide a comment for this story.
Robinov hasn’t been able to dig into the data yet to figure out which customers are likely to stay with the service post-pandemic. But he said “there’s definitely a breadth of customers” visiting the service for the first time. While Farm to People used to rely mostly on targeted marketing on Instagram or through events, Robinov said lots of customers now seem to be coming through referrals.
“I’m asking from a marketing angle, how many of these customers just need food and will take it from anywhere, and how many of these are truly Farm to People customers and will stick around for a long time?” he said.
Retail sites spike
In normal times, Amazon had become the place to buy everything and anything. But as shipping delays and inventory shortages have weighed on supply, consumers seem to be looking further to meet their needs.
Many traditional retailers have been reporting big spikes in online shopping. In an April business update, Best Buy CEO Corrie Barry said the company had seen domestic online sales grow 250%. Target said on April 23 digital sales had grown 275% month-to-date.
Wayfair, an e-commerce furniture and home goods business, said in its earnings call last week it had already seen revenue growth trending up 90% year-over-year after finishing the first quarter ended March 31 up 20% in net revenue.
Some shoppers seem to be going straight to direct-to-consumer sites for things they need right away, like monitors and office equipment to help them comfortably work from home. A spokesperson for electronics manufacturer Lenovo said in a statement it has seen a “surge” in global e-commerce traffic with “increased demand for products that customers can get quickly with short lead times.”
Overstock.com, one of the original e-commerce retail players, saw 120% year-over-year growth in retail sales in April, including over 100% growth in office furniture sales.
Without brick-and-mortar furniture stores competing for business, customer acquisition costs have declined for Overstock, according to retail president Dave Nielsen. That’s allowed Overstock to spend even more on ads, though it’s shifting some of its TV spend to cable news networks gaining more traffic as people seek out relevant health updates.
Overstock has been communicating with customers about shipping delays that could last up to a week. Nielsen said the pandemic has provided “a short window” where customers are “more understanding” about delays.
He doesn’t see a day when brick-and-mortar retail dissolves, but said with more customers being forced to try online shopping because of the lack of alternatives, they’ll likely discover how easy it is for at least some of their needs.
“There’s going to be some stick to this,” Nielsen said.
Still a win for Amazon
Make no mistake: the shift to e-commerce shopping will still benefit Amazon. Even as consumers peruse other sites, the more shoppers grow accustomed to shopping online versus in stores, the more opportunity exists for Amazon to make a buck.
Amazon is still poised to come out stronger on the other side of this crisis. Despite inventory shortages that extended its delivery times, Amazon grew net sales by 26% year-over-year in the first quarter, the company reported. Amazon has also shown signs shipping times are improving. It recently allowed third-party sellers to ship nonessential goods to Amazon warehouses, and turned on other features on its site, like discounts, that normally encourage people to buy more.
As Amazon’s U.S. retail e-commerce sales have grown every year, its share of total U.S. e-commerce sales has grown as well, according to eMarketer. The firm estimated Amazon will reach more than $260 billion in domestic retail sales this year and hold 38.7% of the market. Walmart, the runner-up, will own just 5.3% of the market this year, according to eMarketer.
And while Washington lawmakers and local officials are still watching the company’s competitive and labor practices, many are also praising the company in the same breath, recognizing the important role it has played in the coronavirus response.
Amazon has now committed to spending its expected $4 billion second-quarter profit in efforts related to the pandemic, including developing testing capacity for its employees and beefing up its shipping network to get products out on time. Some analysts speculated that Amazon’s testing capacity could eventually open a new business line, though its CFO wouldn’t indulge the idea just yet.
For brick-and-mortar businesses, the threat Amazon posed to their income has been compounded by a new danger.
“Amazon was the threat that I had in mind when I created Bookshop,” Hunter, the CEO, said of the independent booksellers on his platform. “And then Covid-19 emerged as a much more urgent and immediate threat.”
This story first appeared on CNBC.com. More from CNBC: