Amazon Advertising may have seen a 47 percent growth rate during 2020. And chances are Amazon as a whole will continue to top year over year sales, with some sources estimating Amazon will surpass Walmart to become the largest US retailer by 2025. But will US consumers continue to pay attention to its advertising division now that we’re beginning to emerge from the pandemic shell?
That Amazon Advertising has been one of the more successful online advertising platforms in the past few years, exceeding revenues of $21 Billion, shouldn’t come as a surprise—even in spite of Google’s seeming dominance. It’s backed as much by innovative solutions as the Amazon name itself. But despite recent estimates that it could grow to an over $40 Billion entity by 2023, things may not be what they seem. A report published by Tinuiti in June indicated a sharp decline in US Sponsored Product click volume since April, dipping well below the standard 5 percent. But should brands necessarily be worried?
Seasonality and Stimulus
One particular factor for the downturn in ad clicks is the same that is affecting Google ads: waning consumer spending after the third round of federal stimulus checks were received in March. Recent analysis indicates just 13 percent of eligible stimulus check recipients indicated they were planning to use their surplus on nonessential items. Yet according to a recent report from Deloitte, consumer spending on durable goods has seen an 18 percent increase between the first round of vaccinations in December and May of 2021.
Yet another cause may have been the unpredictability of Prime Day 2021. Despite relatively moderate sales of an estimated $11.19 Billion, it’s not a secret that many Amazon customers wait until Prime Day to plan both major and minor purchases. But 2021 was the second year in which Amazon switched Prime Day from its traditional place during the weekend of July 15th. With a recent McKinsey report indicating that over 50 percent of US consumers were planning on increasing discretionary spending over the next few months, the decline in advertising may be the result of Amazon customers looking for additional outlets as pandemic fatigue continues to influence shopping habits.
Amazon may have moved Prime Day to earlier in the year to capitalize on their Q1 success. But there may be a hidden culprit behind Amazon’s ad decline.
Supply Chain Disruption: The Elephant in the Room
Global eCommerce sales may have seen $4.29 Trillion in 2020. But what was a record for eCommerce proved an overwhelming burden on global supply chains. Major breakdowns helped spur a massive congestion which logistics providers were entirely unprepared for. A glut which affected three of the largest US marine port terminals for months on end was reported as early as October of last year, with insufficient manpower and equipment shortages resulting in higher costs and a shortage of inventory for sellers.
All three ports are significant gateways for Asian imports, which saw an excess of $1 Trillion in sales to the US in 2020. But the supply chain disruption had a notable effect on Amazon FBA sellers, many of whom complained of increased inventory limit restrictions—despite Amazon indicating planned ASIN-level quantity limits on products in FBA as early as July of last year. As a result, many FBA sellers were forced to seek merchant-fulfilled options; making them entirely ineligible for Prime.
For sellers, it was a nightmare. But consumers may not always take into account how increased demand can have a devastating effect on an already fragile supply chain.
Will Amazon Advertising Clicks Continue to Decline?
It’s important to remember that a two month decline doesn’t necessarily mean a recurring trend. In fact, it coincides with the predicted return of physical retail as the US reopens. But the eCommerce genie is already out of the bottle. An estimated 65 percent of global consumers are planning on continuing their changed shopping habits after the pandemic, with a large result of those habits likely to be affected by digital loyalty.
Amazon can work with both sellers, vendors and customers alike to ensure transactions are seamless. That means full transparency into how inventory levels affect sales, and proactively informing sellers of what they can expect should further supply chain disruptions continue. Amazon’s proven themselves already to be customer-centric in many ways Google is not. And if they hope to compete with Google Ads, they need to apply those same values to their advertising division as they do to their retail segment.
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