The Chaos Report

With people not leaving their homes, you’d expect sales to be booming for the home delivery behemoth…

And they are. So what’s the problem?

The company that’s far and away the best in the history of the world at logistics, all of a sudden can’t keep up.

So it’s changing its business in a way that could have far-reaching consequences. Specifically, what Amazon’s doing right now in addition to trying to hire a whole bunch of new people all at once, is limiting access to businesses that fulfill through Amazon. That is, 3rd party companies that typically deliver product they sell through Amazon to Amazon, and then Amazon turns around and ships it out, for a fee. In many cases these 3rd party sellers have been incentivized (some might even say forced) by Amazon to use Amazon, and not having access may mean losing a lot or most of their business. Amazon says those businesses will for now have to store and ship their product on their own, which many businesses are no longer equipped to do, and this is hardly a time to ramp that up.

And this doesn’t represent just a small slice of Amazon’s business: 3rd party sales are about half.

Amazon is spinning this as putting focus in its warehouses and shipping centers on products most direly needed during the Coronavirus crisis, such as cleaning and medical supplies, food and pet food. It will continue to process 3rd party shipments of those types of goods. But anything it considers “non-essential”, unless Amazon stocks it itself, is now banned. Until at least the 2nd week in April.

While we can’t argue with Amazon prioritizing goods that could literally keep people (and their pets) alive, it’s hardly reassuring for anybody. And it also means Amazon is making decisions about what people really need that may or may not really be valid for different individual people.

Amazon also says it needs to focus more effort on preventing price gouging by 3rd party sellers on its site, and that plays into it to. And that’s fair.

But Amazon is one of the hugest, most efficient, and most recognizable engines of modern American commerce. So it plays a large, maybe outsized part in the vision of what many Americans believe will help them pull through these difficult times.

Because even if people felt like the government was not responsive enough, they believed Amazon had their back.

Now, as federal, state and local governments seem to be catching up at least a little, it’s Amazon that’s falling short. And that could come as a pretty big shock to consumers who figured the company is just so good at what it does, and already so much a part of their everyday lives, that it would always have their backs.

This news about Amazon was out while the stock market was open Tuesday, and Amazon stock rallied 7%, slightly outperforming the rest of the market. But it was somewhat under the radar beyond the financial pages, with so much else going on during the day.

And this latest move by Amazon doesn’t represent an utter disaster at least not yet (except maybe for some of the 3rd party sellers that will now have to scramble to get their goods out the door). Consumers can, and are already waiting an extra day or two for some of their shipments without much fuss. And Amazon’s move could be a brilliant, proactive way of best serving its customers, not something done out of desperation. But it could also signal a real threat in terms of a crisis of confidence for American consumers.

Because if people start feeling they can’t have confidence in Amazon, what’s next?

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In the interest of full disclosure, we own a very small amount of Amazon stock.