March 17, 2020 / 3:49 PM / in 13 days

EXCLUSIVE-Amazon warehouses receive only vital supplies in U.S., Europe amid coronavirus

(Adding coverage of Europe, and comments from analysts and sellers)

By Krystal Hu

NEW YORK, March 17 (Reuters) - Amazon.com Inc will only receive vital supplies at its U.S. and UK and other European warehouses until April 5, its latest move to free up inventory space for medical and household goods in high demand as a result of the coronavirus outbreak.

The change does not mean that Amazon will stop selling non-essential items like phone cases and toys for now, only that products may be more likely to run out of stock in the next few weeks or sellers have to ship the products directly to consumers themselves.

In a note sent to sellers on Tuesday, Amazon said it is seeing increasing online shopping demand from consumers. As its household staples and medical supplies are running out of stock, it will prioritize certain categories in order to “quickly receive, restock, and ship these products to customers.”

Amazon defined several categories as essential products that can continue shipping, including baby products; health and household items; beauty and personal care; grocery; industrial and scientific; and pet supplies. Books are included as well.

“We understand this is a change for our selling partners and appreciate their understanding as we temporarily prioritize these products for customers,” Amazon said in a statement.

The company said the new protocol applies to both first-party vendors and third-party sellers. That suggests that the company is not protecting its own products.

The move follows Amazon’s announcement it will hire 100,000 workers for its warehouses on Monday, as the Seattle-based giant is trying to meet growing online shopping need from people who stay home amid the coronavirus outbreak.

DELAYED PRIME DELIVERY

The months-long outbreak is posing challenges to the e-commerce giant’s operations, from supply chain to deliveries, as the virus spreads from China to the rest of the world.

“Our factories just resumed production, but now we can’t ship to warehouses until April,” said Zengxie Pang, a China-based seller, “We are already seeing a rising demand for kitchen supplies and they will likely run out of stock, as well as other products people use when they’re stuck at home.”

Amazon’s two-day shipping guarantee has also in some cases slowed to up to seven-day delivery, Baird Equity Research analyst Colin Sebastian said in a note. Tuesday’s announcement aims to speed up the operation, at the risk of limiting the availability of non-essential items like electronics that typically are a big part of Amazon’s business.

“This change will likely force some third-party sellers currently dependent on Amazon to shift sales to other marketplaces (eBay, Wish, Walmart, Facebook Marketplace, etc.), or onto their own websites,” Sebastian said.

Third-party sellers account for over half of the sales on Amazon. Amazon has been courting sellers to use its own fulfillment system, enabling many of them with faster delivery without the risks of sitting on inventories.

It is especially popular for sellers who use a drop shipping method, meaning sellers import products from manufacturers in countries including China and directly send them to an Amazon warehouse. Amazon earns fees from managing the storage and delivery process.

Sellers supplying products that are deemed non-essential could see their products run out of stock and they will be unable to restock as a result of the measure. Still, they can use other fulfillment methods to directly mail products to customers.

One consultant said the announcement landed as third-party sellers were grappling with economic uncertainty amid the outbreak. Workers at bars, gyms, theaters and other non-essential businesses are furloughed to help contain the spread of the deadly virus and President Donald Trump on Monday said the U.S. economy may be sliding into recession.

“Sellers are rethinking their entire strategies for selling in 2020, not just Q1 and Prime Day,” said Chris McCabe, founder of Amazon seller consultancy ecommerceChris.com.

Prime Day, scheduled for July every year, is Amazon’s annual marketing blitz when sellers offer exclusive deals and discounts that contribute more sales than Black Friday. Sellers usually stock up on inventory ahead of the shopping holiday, while this decision adds uncertainty to when they could ship products in.

“Just posting this announcement has a big impact on Prime Day,” McCabe said.

Reporting by Krystal Hu; Additional reporting by Lisa Baertlein in Los Angeles; Jeffery Dastin in San Franscico and Elvira Pollina in Milan; Editing by Nick Zieminski, Lisa Shumaker and Sandra Maler

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