AMZN Amazon.com Inc

By Jon Emont 

Thousands of Amazon sellers who built their businesses using China's cheap and efficient manufacturers are on the spot as the coronavirus shuts factories there.

Sellers say Amazon's ranking algorithm demotes products that are out of stock. To avoid that painful fate, many are raising prices to slow sales, and attempting to shift production to other countries.

Larger corporations like Apple Inc. also face difficulties in getting goods made on time in China. But merchants say that as small buyers they'll be low on the list for merchandise when production eventually revives. And once stock is replenished, they say they'll need to spend big on advertising to regain their Amazon rankings, which make products appear higher in site searches.

"I don't think the Amazon platform has seen such a massive amount of inventory problems as we are about to see," said Patrick Maioho, a Michigan seller of kitchen products who also advises others on manufacturing in China.

Mr. Maioho said a supplier in southern China warned him that even if the local government allows its factory to reopen, it will be short-staffed for weeks while workers from other provinces self-quarantine. He recently ran out of two products that account for 30% of his monthly revenue, and said his product rankings are dropping on Amazon.

"There's not much you can do," he said, adding that it would be difficult to move production elsewhere.

There is some good news, though: One supplier had excess inventory from his last order, which Mr. Maioho said will keep him in stock for that product for a few weeks longer.

The third-party marketplace accounts for more than half of Amazon's retail sales, and a growing share of sellers are based in China, according to Marketplace Pulse, a data research firm.

Amazon said it had already worked with suppliers to secure additional inventory and provided sellers with guidance on protecting the health of their accounts on the platform. It said product availability is just one of many factors it considers when displaying shopping results for customers on its website.

Chris Davey, a British seller of audio products based in Shenzhen, generates more than $1 million in annual revenue via Amazon. He said he's checking in with his suppliers regularly--mainly to see how they are coping with the public-health emergency. The hope is that when production restarts, "they remember who we are and that we're the people that asked how is your family, not where are our orders," he said.

Some Amazon merchants are approaching smaller competitors to see if they'll part with extra inventory. Others are seeking out U.S. wholesalers with excess stock. That is costlier than buying directly from factories, but may be cheaper than selling out and having to effectively relaunch products later.

To preserve stock, many sellers are pulling online advertising campaigns as well as raising prices.

"The worst thing that can happen in a product business is you run out of stock," said Michael Michelini, a partner at Alpha Rock Capital, which manages around 10 brands on Amazon. "You're never really sure your ranking will come back the way it was."

Mr. Michelini said his company has been raising some prices. Though it bought large quantities of many bestselling items ahead of the Lunar New Year, he said, some office-supply and shoe-accessory products could sell out within weeks.

"March will be breaking people," he said.

It can be difficult for small companies with specialist products to quickly move manufacturing out of China, said Nathan Resnick, chief executive of Sourcify, which helps businesses find manufacturers in Asia. He has helped connect Amazon sellers with alternative suppliers in India and Vietnam, he said, but manufacturing costs outside China can be much higher, and factories in Vietnam often won't accept small orders from Amazon sellers.

Garland Sullivan, whose Jacksonville, Fla.-based Amazon business sells an average of $350,000 a month in multiple categories, with many products made in China, said he could be out of some goods as soon as early March. In a last-ditch bid to prevent that, he began making one product in India this month and is in talks to have others made there as well. In the future, he says he'll try to be less dependent on China.

"It's a big wake-up call right now," he said.

Some sellers are already starting to worry about inventory for the holiday season--the most-important few months of the year--which requires a long lead time.

"Fourth-quarter planning usually happens now," said Eddie Levine, president of Hub Dub Ltd., which sells toys and housewares under its own and other brands. "With a big unknown on China, everyone is on edge."

Dana Mattioli contributed to this article.

(END) Dow Jones Newswires

February 26, 2020 05:44 ET (10:44 GMT)

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