The Implications of Increased eCommerce in the Wake of COVID-19
Although the outlook for the remainder of 2020 is uncertain, many states across the US are relaxing stay-at-home orders and moving into a new phase of socially distanced shopping, dining, and socializing. When the outbreak of this pandemic surged in early spring, consumers with limited options quickly began to rely more heavily on eCommerce to meet their everyday needs.
Gray Falkon recently conducted a consumer survey that captured 2,477 responses regarding spend on Amazon before the rise of COVID-19, during the period of social distancing, and expected spend and people resume activity outside the home.
The increase in online shopping, particularly on Amazon, is here to stay.
Categories such as Home and Garden and Clothing and Accessories are expected to see a continued shift toward online purchasing of between 25-30%. Even categories like Pets, Baby Products, Personal Care, and Beauty Products will see a sustained increase of anywhere from 9-17%.
Digital Commerce 360 predicts, “barring a rapid easing of the health crisis, there could be a big shift to online shopping during retailers’ two biggest seasons of the year—back-to-school and holiday shopping.” Once behavior changes begin to settle in and consumers realize how simple and convenient it is to purchase items online they never have before, consumers have told us that they won’t turn back to brick and mortar as much, neither for living essentials nor special occasion splurges.
Smart Brands are Investing to Win on Amazon.
Brands and their partners, who recognize this major shift is not temporary, are investing in brand assets and eCommerce infrastructure in order to gain and maintain loyalty from this new pool of buyers. These companies will grow on Amazon while navigating the severe sales lag in the brick and mortar retail sector.
For example, cosmetic companies and their consumers are accustomed to sampling products in person where quality, texture, color consistency and match to skin tone can be experienced in-person. Direct contact with cosmetics in a retail environment will be significantly diminished, so forward-thinking cosmetic brands are investing in innovative ways to create customized experiences to convey quality, texture, color consistency, and match to an individual’s skin tone during an online experience. They are looking to make the consumer experience as close to immersive as possible to assist in their transition.
Though cosmetics may be a clearer example of the delicate challenges facing brands during this consumer shift, this essential pivot is necessary for everyone. Much is at stake in getting it right. Those that do will keep their existing customers and win new customers from competitors who flounder.
A More Menacing Competitor
There is a critical threat brands must recognize while they are adding resources to meet increased consumer demand on Amazon. That threat comes in the form of unauthorized 3rd party sellers who are selling gray market goods. In other words, sellers of technically legitimate products, but through illegitimate means, from unknown origins, and with dubious quality control practices.
These unauthorized sellers are especially menacing because they, too, have an unprecedented opportunity to thrive in a perfect storm of market conditions: increased online demand, disrupted supply chains, and stranded inventories across multiple retailers. On top of that, tight squeezes on personal incomes make them vulnerable to deceptive pricing and selling practices
Rogue, gray market sellers are already adept at working the Amazon system to win sales at the expense of brands. They know how to take advantage of the investments brand owners make in marketing assets, such as in-line advertising, brand copy, and high-quality product images.
In fact, they probably already sell your brand. They cannot wait for you to roll out the results of your investment in new marketing assets and overall consumer experiences. They will pay nothing for that value, yet they can capture all of it in just a couple of practiced “clicks.”
Back to the cosmetics example. Let’s say Clinique invests in fast-tracking a revolutionary way to include elements of VR to help consumers pick exactly the right shade of eye shadow (they have begun incorporating elements of VR already). Clinique rolls out the required technology, images, copy, etc. that would accompany this kind of launch. The fulfillment structure is set to make sure the consumer receives exactly the product they have chosen, in their matched shade.
The practiced illegitimate seller has been waiting for this moment.
Clinique launches its program. With just a few clicks, the rogue seller has their own listing, complete with every element of Clinique’s listing. However, they undercut Clinique’s price by 20%, repeatedly shipping the wrong product in the wrong shade, complete with broken packaging.
Clinique: Marketing investment, operations and fulfillment, retail margin for product, and a disillusioned consumer. High cost. Reward and reputation hijacked by the gray market.
Cost to unauthorized seller: 20% off retail. Low cost. High reward.
The Origin of Gray Market Products
This menacing competitor is not an enterprising, recently out-of-work individual who discovers a good deal at Costco and buys a cartful of those products to sell on Amazon.
Rather, this competitor is a sophisticated network of suppliers and buyers who find ways to cheaply source products and efficiently sell them online. Their sources of products include:
Refurbished products (not disclosed as such)
Expired and discarded products
Products from other countries with different regulatory environments
The gray market is always a menace to online brands, but current times pose an even bigger challenge. Inventory is stalled thanks to breakdowns in the supply chain. In many cases, inventory has been languishing on shelves for longer than usual, due to both temporary and permanent business closures.
Let’s frame this back within the cosmetics example above. People in their homes are wearing fewer cosmetics, and those venturing outside their homes are doing so with masks on. As a result, they’re going to purchase less lipstick, and perhaps more eye shadow instead.
Already languishing inventory will stall even longer, because purchasing is down and people are not likely to replenish their supplies in a cosmetics store. The marketplace should expect to see sellers offering a glut of poor quality inventory at a deep consumer discount, while still capturing exceptional margin.
Professional gray market sellers broker deals to buy inventories of cosmetics for pennies on the dollar. Some will come from a distressed retailer looking to unload product. Some of that product will come from crates that have inexplicably disappeared from a warehouse. High volumes of cosmetics will get lost in the shuffle, and gray market sellers will hold that deeply discounted inventory without being subject to brand-mandated or government-mandated quality controls.
Brand Protection – Up Your Game
To win in the post-pandemic marketplace, brands have no choice but to invest in growth on Amazon. While that investment will include innovating and evolving new consumer experiences, brands must also make sure to protect investments against rogue sellers.
An illegitimate seller’s biggest fear is losing Amazon rights, and that holds especially true right now. The stakes are high for brands, but they are even higher for sellers on the gray market. By using Amazon’s existing rules and regulations against them, brands can get illegitimate sellers removed from their listings.
These sellers are accelerating their pace, but you can beat them. You must become a master of Amazon’s policies and an expert at monitoring violations. You must learn Amazon’s new and continuously evolving violation reporting mechanisms. You must be able to contact sellers directly.
With those things in place, engage both the illegitimate seller and Amazon with relentlessness.
You will win.
Stop playing Whack-A-Mole. Contact Gray Falkon today to ensure your brand has the best protection against the gray market.
About the Author
About Trajan Trajan Bayly, CEO of Gray Falkon, is an award-winning innovator across multiple industries, including e-commerce, technology, health, and finance. As a 20-year business veteran and recognized expert in market strategy, innovation, and artificial intelligence (AI) technology, Trajan’s leadership experience spans a wide spectrum, from startup technology companies to large, global organizations like Ernst & Young and General Electric.