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Amazon Got Us Hooked on One-Day Delivery -- Now Small Businesses Are Paying for It

12/06/2021 5:22am

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By Christopher Mims | Photographs by Gavin McIntyre for The Wall Street Journal 

Things had been looking good for Charleston Gourmet Burger, a small family business based in South Carolina. Founded by husband-and-wife team Chevalo and Monique Wilsondebriano in 2012, it sold its burger sauces and marinades in thousands of stores across the U.S., on the shopping channel QVC and directly to customers through its website. Just before the pandemic led to lockdowns in March, the couple made the fateful decision to stop selling through stores and to concentrate on online sales.

It proved to be a near-fatal mistake for their small business, which is the family's sole source of income, and employs all four of the couple's teenage and adult children, as well as Mrs. Wilsondebriano's sister and mother.

In the Amazon era, selling online is one thing, but actually getting products to customers fast enough to make them happy is something else. It's especially difficult if, like the Wilsondebrianos, a merchant isn't selling via Amazon, but still feels obligated to match the e-commerce giant's promises of free and fast delivery.

Their sales plummeted, from upward of $20,000 a month to as little as $3,000 a month, Mrs. Wilsondebriano says. The family had no choice but to pack and ship orders themselves, since they could no longer afford the third-party shipper they had been using.

Still, many potential buyers complained about shipping charges -- around $8 on a $40 order -- and that the sauces and marinades took too long to arrive, says Mrs. Wilsondebriano.

"It is a daily battle trying to keep up with Amazon, and it is not fun," she says.

In fact, while Charleston Gourmet Burger left Amazon two years ago because the fees were so high, the family business is considering a return.

America's small and medium-size online merchants are being separated into winners and losers according to their ability to adapt to changes in logistics driven largely by Amazon and other big retailers. Amazon's continuing hiring binge and warehouse building spree facilitate ever-faster, free Prime shipping.

As a result, even merchants who don't sell on Amazon are racing to ship products as fast as they can, either eating the extra cost or raising prices and watching their sales decline -- while simultaneously coping with supply-chain bottlenecks.

For the Wilsondebrianos, this means a daily ritual involving the entire family.

Every two weeks, pallets of goods -- ranging from 1,500 to 3,000 bottles -- are dropped off from the factory at a workshop attached to their garage, which serves as a makeshift warehouse. In addition to running the online ad campaigns they use to drum up sales, Mrs. Wilsondebriano and her husband must process every incoming order from the website.

In idle moments between remote classes conducted on Zoom, their 15- and 16-year-old daughters help pack boxes, and write personalized notes thanking customers. Their 25-year-old son, their eldest daughter and Mrs. Wilsondebriano's mother all pitch in when they're available.

Once they put labels on the boxes, the husband-and-wife team loads them into an SUV and drives them to the local post office.

"It's like an assembly line," says Mrs. Wilsondebriano.

But it's not an assembly line -- let alone a warehouse full of humans and robots, moving in a software-optimized workflow meant to drive down the cost of every online purchase.

Amazon was among the first e-commerce companies to turn its supply chain into a competitive advantage, says Matt Crawford, general manager of shipping at BigCommerce, which helps merchants build and run shops online. Once Amazon created its Marketplace, where anyone could sell wares, and Fulfilled by Amazon, its logistics service for warehousing and shipping the goods those businesses sold on Amazon, that advantage extended to all sellers willing to pay for these services.

Amazon has continually ratcheted up the speed with which most goods sold on its site arrive on the doorsteps of shoppers, offering first two day, then one day, and now frequently same-day delivery, as it rolls its Prime Now service into its main site and app.

This has left sellers who want Amazon's coveted Prime badge -- which indicates fast shipping and yields significantly higher sales -- with a difficult choice, says Steve Denton, chief executive of Ware2Go, a subsidiary of United Parcel Service that matches small and medium-size online merchants with warehouses from which to distribute their goods.

Sellers can either pay ever-more-expensive fees to Amazon to warehouse and ship their goods from the company's own facilities, he says. Or they can ship from non-Amazon warehouses that meet the stringent demands of Amazon's Seller Fulfilled Prime program, including nationwide availability and fast shipping. Some sellers, especially those who deal in large items or ones that don't typically sell quickly, find this a more affordable option.

"You're going to see a continual weeding-out of merchants that can't solve the supply-chain piece [of online sales]," says Mr. Crawford. Merchants' shipping costs, through carriers like UPS, the U.S. Postal Service and FedEx, are going up between 5% and 7% this year, as demand skyrockets. And since Covid disrupted supply chains world-wide, merchants have to pay more to warehouse a larger buffer of goods. Meanwhile, demand for faster shipping means retailers have to figure out exactly how many items to store in which warehouses spread out in a network that spans the country, he adds. (Amazon's fees discourage retailers from keeping items in its warehouses for long.)

To be in the Seller Fulfilled Prime program, sellers must stock merchandise in warehouses from which customers can be reached in one or two days' delivery time, for most views of a product on Amazon's site and app.

Amazon's success with its marketplace has spawned many imitators. Things you buy on the websites of Walmart, Target, Wayfair and dozens of other big merchants may be sold and shipped not by those companies, but by smaller businesses that give these retail giants a cut of sales and may pay other fees in exchange for the listing.

The proliferation of the marketplace model, and the way Amazon shapes customers' expectations, means that the growing demands the company places on Prime sellers ripple across the entire e-commerce industry, says Mr. Denton. These other marketplaces continually change their own seller-fulfillment requirements based largely on Amazon's standards.

Amazon says it has "made changes to Seller Fulfilled Prime so customers have a consistent Prime delivery experience, regardless of the fulfillment method. Amazon succeeds when sellers succeed, and these changes help ensure that SFP sellers continue to delight Prime customers with the shopping experience they expect."

For small or medium-size online sellers, keeping up with the latest Prime demands requires what were until recently considered extraordinary measures. It means operating warehouses at least six days a week, and sometimes resorting to pricey second-day or overnight shipping.

Some sellers are thriving in this new world. In the early 2000s, Lee Siegel founded ECR4Kids, a manufacturer of flat-pack, ready-to-assemble furniture and play equipment for children. The company sold to traditional buyers, like dealers to school districts, as well as directly to big-box stores and even Amazon -- but only as a wholesaler and vendor. In late 2018, to increase sales, Mr. Siegel listed some of his merchandise directly on Amazon's marketplace.

When the pandemic hit, Mr. Siegel thought his sales would crater, but instead they boomed, as parents of children learning at home rushed to buy things like child-size desks, chairs and cubbies.

Around the same time he began selling on Amazon's marketplace, ECR4Kids shifted from running its own warehouses to outsourcing its fulfillment to third-party logistics providers, including Ware2Go.

Previously, says Mr. Siegel, fulfillment services could be provided by anyone with "a forklift, a loading dock and a big empty warehouse with shelving. But to survive versus Walmart, Costco, Amazon and Wayfair requires a completely different approach to customer satisfaction and speed of shipping."

Some turn to companies such as Productiv, which operates six distribution warehouses. While Amazon relies on its own bestiary of shelf-moving and package-sorting robots, companies like Productiv are testing systems with "follow-behind" robots that trail warehouse employees as they walk through rows of shelving, and then ferry to conveyors any items their humans pick from those shelves.

As in many other industries, this automation is in part a reaction to rising wages and a scarcity of labor. Demand for warehousing and fulfillment is setting and breaking records by the month, leading to both more competition for these services and a greater variety of them to choose from.

At Charleston Gourmet Burger, things have improved a great deal. The weather has grown warmer and millions of vaccinated Americans are once again gathering with friends and family -- and firing up the grill. Monthly sales rebounded to nearly $14,000 in May, and Mrs. Wilsondebriano anticipates June will be even better.

In addition, the family is going to start experimenting with using Amazon to both sell and fulfill orders. Amazon is launching a pilot program aimed at providing additional assistance to Black business owners like the Wilsondebrianos, including free advertising, free storage and returns processing, the waiver of some fees, free advisory services and more. Some time within the next two weeks, about 90% of orders from the family's website will be fulfilled by Amazon, and their products will appear on Amazon's marketplace.

"To have so many fees waived sounds like a win-win," says Mrs. Wilsondebriano. "But I don't know how this is going to go."

-- For more WSJ Technology analysis, reviews, advice and headlines, sign up for our weekly newsletter.

Write to Christopher Mims at christopher.mims@wsj.com

 

(END) Dow Jones Newswires

June 12, 2021 00:14 ET (04:14 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.

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