Amazon, whose net income fell 31%, despite a 26% spike in sales, as a result of the extra costs incurred in response to the COVID-19 pandemic, faces a further threat to its share value – directly related to its production strategy. After selling only essential items for the past two months, the corporation’s inventory dropped 70% increasing the visibility of its private labels like AmazonBasics. Primarily produced in China (70%), Amazon’s private labels have traditionally been a high-volume, high-margin segment, accounting for 5% of the corporation’s revenues in India (and 1% globally). With shopping habits altered by the deepening recession, Chinese supply chains continuously disrupted and India raising import duties to encourage local production, Amazon’s reliance on its sourcing partner has now come under scrutiny.
The lockdown has exposed the fragility of Amazon’s private brands import strategy, in major part reliant on a price- and volume-competitive supply chain based in China. The e-commerce giant has already shifted the production of personal protection equipment (PPE) kits to India, encouraging other private brand categories to follow – particularly if the post-COVID-19 world continues to draw customers to low cost rather than original brands and increase demand for Amazon’s owned brands. As transnational trade continues to decrease, will Amazon be forced to localise more of its value chain to ensure continuity of business and maintain prompt deliveries? Will ‘Made in India, made for India’ become the new norm? How will this affect its sourcing and inventory strategy in a more global sense, in the long term? And does this change, given Amazon’s size, signify a more profound shift towards local supply chains?
Signal spotter: Jiehui Kia
Amazon re-examines its Made in China, Made for India approach https://the-ken.com/story/amazon-made-for-india/
Jeff Bezos tells Amazon shareholders to 'take a seat' as profits hit by coronavirus https://www.independent.co.uk/news/world/americas/amazon-earnings-q2-jeff-bezos-shareholders-profit-coronavirus-a9493466.html
Amazon hires another 75,000 staff to cope with Covid-19 demand https://www.telegraph.co.uk/technology/2020/04/13/amazon-hires-another-75000-staff-cope-covid-19-demand/