Amazon Prime Day is actually a bummer for these sellers

By Nathaniel Meyersohn, CNN Business

Amazon Prime Day is typically one of the best days of the year for Keababies, which sells baby care and maternity products on its web site.

Last October, Keababies racked up around $500,000 in revenue during the two-day event, said co-founder Ivan Ong. Drawn by the steep discounts Keababies offered to customers on Prime Day, a flood of Amazon shoppers snapped up bibs, baby combs, pillows, baby slings and changing pads.

But this year, Ong can’t afford to offer as many discounts. The company is facing inventory shortages and fears running out of stock on products on a day with especially high consumer demand. Manufacturing and supply chain costs have also soared, making it harder for Ong to offer deals.

Prices on everything from steel and lumber to corn, diapers and toilet paper are increasing as a result of surging demand from consumers and strained supply chains. A shortage of shipping containers and bottlenecks at ports have increased the cost of moving products around the world, impacting small sellers and large chains alike.

“I don’t have enough profit margin to do it,” Ong said, noting that Keababies is paying double the price for shipping containers to import products from China than a year ago.

Without major promotions, Ong expects sales to lag this year. Discounts are key factor in driving sales on Prime Day in part because they can help lift sellers’ rankings on Amazon’s online storefront or appear on special Prime Day deal pages on the site that fuel traffic.

Other independent sellers interviewed by CNN Business aren’t expecting Prime Day, scheduled to take place June 21 and 22, to be a bonanza this year. They can’t offer the promotions they used to because they worry they might not be able to meet customer demand and also can’t afford the hit to profits at a time when supply chain expenses are rising.

Their troubles come as Amazon is making a push to boost independent merchants in the run-up to the event. Third-party sellers make up close to 60% of Amazon’s $236 billion in annual retail sales. And Amazon is running a deal for customers in the weeks before Prime Day to drive shopping at independent merchants: Prime members will get a $10 credit on Prime Day if they spend $10 at select small businesses from June 7 through June 20. Amazon has called it the “biggest promotion for small business sellers in our history.”

A spokesperson for Amazon said “we continue to innovate and grow Prime Day to ensure our Prime members and selling partners find incredible value.”

The spokesperson said Amazon is offering more deals this Prime Day than it did last year, “with more than one million deals from small and medium-sized businesses around the world and more than two million deals total” over the course of the event.

‘Pouring fuel on the fire’

Typically promotions are used to help rack up sales and move a high volume of products. But some sellers told CNN Business that promotions will be limited this year for three reasons.

One is that consumer demand is outstripping supply, so sellers worry they may not be able to fulfill orders if they give shoppers extra incentives to buy their products.

“Many brands are struggling to keep consistent inventory in stock because of the supply challenges,” said Mike Black, chief marketing officer at e-commerce analytics firm Profitero, which advises brands on e-commerce strategies. Businesses also typically use Prime Day to either build buzz and sales traction for new products, he said, but predicted “this Prime Day is going to be more curated by what products are in stock and available.”

“Running deals and promotions on top of this dynamic is like pouring fuel on the fire,” he said.

Another factor straining supply is Amazon’s placing new restrictions on vendors like Keababies for how much inventory can be stored at the company’s warehouses. For products from most third-party sellers to be eligible for Amazon Prime and receive free same-day or two-day shipping, they must be shipped through Fulfillment by Amazon, Amazon’s e-commerce distribution network.

“Amazon doesn’t have unlimited storage. If you have less inventory to Amazon, you’re playing a game of staying in stock under that inventory limit,” said Jon Elder, a former Amazon seller and the founder of Black Label Advisor, a consultancy firm that advises small and medium-sized merchants making up to $10 million.

Inventory limits hamper sellers’ ability to offer discounts. “The reality is that the deals will not be as good this year,” said Elder.

Amazon said all sellers using Fulfillment by Amazon have inventory limits and that it continually updates those limits based on factors such as past and future sales, current inventory levels, new selections, and the capacity available in its fulfillment centers.

Rising prices

The third factor that some sellers say will limit their ability to offer promotions this year is that since supply chain costs are getting more expensive, sellers can’t afford the hit to profits.

“Sellers have had to increase their pricing to make up for, not just the logistics price increases, but unit costs have also gone up from the factory level,” he said.

Charlene Anderson, who sells arts and crafts on Amazon, doesn’t plan to offer deals on her products this Prime Day because she is having trouble staying in stock and her suppliers have increased costs.

“It’s hard enough to get the products. Why sell them at a lower margin than I need to?” she said. “If I can’t keep them in stock for the prices I am selling them for now, there is no incentive to lower prices on Prime Day.”

Anderson typically sees a 40% jump in sales on Prime Day. This year, she will be happy if sales increase 10%.

“This is a tough one because supply chain issues are the big thing.”

Molson Hart, CEO and founder of Viahart, which makes toys such as Brain Flakes, won’t be running any promotions on Prime Day this year.

Viahart is paying double the cost for shipping containers from China than it was a year ago, and Hart says that Amazon slapped a new cap on goods Viahart can store in its warehouses.

Promotions are “just not a game I want to play.”