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Online retailers are feeling the pain as pandemic-driven e-commerce slows

Transcript

Now that the pandemic-driven e-commerce boom has slowed, small and medium businesses who sell products on Amazon are feeling the squeeze.

RACHEL MARTIN, HOST:

We were all buying all kinds of stuff online during the worst of the pandemic. That has slowed down now. Online retailers are feeling the pain, particularly small businesses that sell products on Amazon. Alana Semuels and Adrienne Ma from our daily economics podcast The Indicator explain why some of these third-party sellers are feeling squeezed.

ALANA SEMUELS, BYLINE: At first, the pandemic was great for e-commerce. Sales jumped 36% in 2020 and then the next year, another 18%. Some people thought e-commerce was going to completely replace brick-and-mortar.

MIKE MOLSON HART: We're - e-commerce revolution. We're never going to open stores again. Everything is just going to switch 100% to e-commerce.

SEMUELS: That was Mike Molson Hart. He became a third-party seller in 2014. And he has a toy company called VIAHART

HART: But then more people flood in. And so by the beginning of 2021, there were more sellers. And then by the beginning of 2022, there are even more sellers.

SEMUELS: In 2020 alone, more than 200,000 new third-party sellers started retailing on Amazon, which is a ton more than the previous year. So to fill all the orders they think shoppers are going to make, Amazon sellers are ordering more and more and more stuff from overseas.

ADRIAN MA, BYLINE: Shipping and railroad and trucking companies, they can't move the stuff fast enough. And meanwhile, prices are going up. Transit times are slowing down. And by the end of last year, consumers were facing pretty high inflation. So what do they do? They cut back on spending on discretionary stuff, stuff they don't really have to have.

SEMUELS: And some of them also start returning to those brick-and-mortar stores.

MA: This change in consumer behavior was probably not great for Mike and a lot of other Amazon third-party sellers.

SEMUELS: Fast-forward to early '22, you have all this inventory that finally gets here. And are people stop buying it?

HART: No.

(LAUGHTER)

MA: So it turns out smallish companies like Mike's and, actually, giant ones - like Walmart and Target and even Amazon - way overestimated how much people were going to transition to online shopping. Remember, e-commerce is really only about 15% of retail sales today.

SEMUELS: But Mike relies on Amazon for 90-something-percent of his sales. And other sellers say the same thing. They might want to sell somewhere else, but they have to go to Amazon because it's where the shoppers are.

MA: So if Amazon has a monopoly, it can pass on the costs to sellers. And they can't really do anything about it. And so that is what Amazon did this year. In the company's most recent earnings call, it said that it is trying to offset inflation by passing on more costs to third-party sellers.

HART: So in January, our costs went up, on average, 40, 45%.

SEMUELS: And those fees aren't just from Amazon. Things like pallets, those flat, wooden structures that you use to transport goods, are also getting really expensive.

You have to buy those? You can't just, like, reuse them?

HART: Amazon doesn't give us back our pallets, so we're constantly giving Amazon these. pallets.

SEMUELS: They don't give them back (laughter)?

HART: Jeff Bezos, give us back our pallets.

SEMUELS: If Mike wants to get rid of all of his inventory, he has to lower prices. The problem is...

HART: It's difficult to lower your prices when your costs are going up. You can lose money.

SEMUELS: We did reach out to Amazon about this. And Amazon said, most of the added fees are just part of its yearly adjustments. And it says it's still a pretty sweet deal for third-party sellers.

MA: Yeah. But is it really a sweet deal for shoppers? If there are fewer sellers and less competition in this Amazon marketplace, what customers could end up seeing is higher prices, fewer options and more out of stocks.

SEMUELS: Alana Semuels.

MA: Adrian Ma, NPR News.

(SOUNDBITE OF MOKHOV'S "AUSPICIOUS PATH")