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The coronavirus crisis, a boon and a challenge for Amazon

An Amazon package delivery man in New York, March 17, 2020. Brendan McDermid / REUTERS

Amazon, the world’s leading e-commerce company, is seeing increasing demand for it with the coronavirus crisis. “As the Covid-19 has spread, we have seen an increase in the number of people shopping online,” Jeff Bezos’s business wrote in a blog post on Saturday March 14. “We are seeing a significant increase in demand, which means that our personnel needs are unprecedented for this time of year”, Amazon confirmed in another statement on Monday.

This trend should be reinforced: containment measures have just been tightened in several countries, including France, where all shops, except food stores and pharmacies, have been closed since Saturday.

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“People are reluctant to go grocery shopping in physical stores for fear of the risk of contamination. In this context of containment, Amazon thrives “, says Michael Pachter of Wedbush Securities. For this financial analyst, the world leader in e-commerce could “Break an activity record” during the current quarter and feel beneficial effects in the next quarter.

Browse best sellers on Amazon on Tuesday, March 17, and reflect consumption during containment: infrared thermometers, masks and hydroalcoholic gel in the trade, industry and science category, high-tech batteries, homework notebooks in books, markers, Monopoly and Power 4 in the toys category, decanters to filter tap water in kitchen items, underpants, socks and white coats in clothes…

Longer delivery times

More broadly, the Covid-19 will strengthen “Home economics”, and Amazon will indirectly be one of the winners, said CNBC stock analyst Jim Cramer on the American channel. However, in the short term, rising orders is a challenge for Amazon. Its logistics system risks overheating.

“Given the current situation, our delivery times may be extended”, warns the home page of Amazon.fr. For example, a colleague who ordered two books for her daughter on March 16 was offered a delivery date beyond March 23. Usually, Amazon is known for the speed of its delivery times. They are reduced to one or two days for the 150 million subscribers of its Prime loyalty program, including 100 million in the United States.

Another problem: some very popular items are out of stock, “Especially in household products”, recognizes Amazon. But the giant of online sales is looking for a solution. He has also started to prioritize this type of essential item (for the home, children, etc.): until April 5, third-party sellers are only allowed to ship these categories of products to Amazon warehouses.

Amazon is also used to using temporary employment to deal with peaks in activity. On Monday, the group announced massive hires: 100,000 full-time and part-time employees will be recruited. The figure is impressive, even when compared to the total number of Amazon employees worldwide: nearly 800,000.

Also read: Amazon announces massive recruitments in the face of a jump in online orders

In a civic or opportunistic boost, Amazon is also appealing to people who have temporarily lost their jobs in the hotel or restaurant industry, due to the coronavirus. The group proposes to “Welcome until their employer can take them back”.

Amazon also has to overcome the Covid-19 crisis internally. On Thursday, March 12, the company advised all employees who can telecommute to stay home, and announced financial support for all those diagnosed with coronavirus. But the many warehouse workers must continue to come to their workplace and some believe that Amazon's instructions (respect distances, clean the premises …) do not protect them enough.

On Wednesday March 18, unions in the Saran warehouse near Orleans are organizing a rally to ask management to shut down the site and contain the workers. In the United States, a collective of American employees has asked for measures to compensate for the “Pressure” created by the increase in orders: suspension of productivity quotas, 50% increase in wages, access to sick leave even without a positive coronavirus test…

“Amazon will also suffer from the economic situation”

Amazon announced Monday an hourly wage increase of 2 dollars in the United States and 2 euros in the United Kingdom and Europe. Previously, he had set up a $ 25 million fund to help the personnel of his subcontractors and independent deliverers affected by the Covid-19. Maintaining acceptable working conditions for employees will be one of the keys to the coming weeks for Amazon.

Last limit to the current growth of the leader in online sales: the recession. The economic slowdown due to the Covid-19 may lower the turnover of certain products. Do confined people want to buy a summer dress or furniture? “The recession affects all businesses. And when the stock market plunges like today, investors sell all kinds of stocks. Amazon will also suffer cyclically but the group has structural advantages over others “, says analyst Michael Pachter.

Jeff Bezos’ group has two other strengths in the current crisis: the cloud business of hosting data and software online, as well as the Prime Video service. The drop in business spending linked to the recession will be more than offset by “Accelerating the transition of their infrastructures to the cloud, favored by remote working”, think Dan Ives, the analyst who tracks this industry at Wedbush. Prime Video, on the other hand, allows subscribers to Prime's fast delivery service to watch movies and series for free. In times of containment, it could encourage the increase of online sales.

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The level crossed by online sales, and the advent of a home delivery company, favored by the coronavirus, are likely to spell the end of the fabric of traditional traders. Anticipating perhaps renewed criticism, Amazon has also set up a $ 5 million fund to support “small businesses” around its Seattle headquarters, which are out of business due to containment.

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