No other retail company does more business during a more crucial stretch than Amazon does on Cyber Monday. In 2015, Amazon generated 36 percent of all online sales on the Monday after Thanksgiving, the online-only iteration of Black Friday that saw more than $3 billion in sales last year.
While Black Friday has traditionally featured major deals that brought shoppers out in droves, Amazon is taking on an unprecedented amount of business in the last days of November, and is preparing for its busiest holiday season ever in 2016. With millions and millions of products set to take up space in its warehouses and fly all across the country to the doorsteps of countless American consumers, the question is: How does Amazon do it? How does one company shoulder such an impressive logistical load and ensure everyone ends up happy?
While there are likely some tricks of the trade that Amazon keeps up its sleeve in order to maintain its dominance over the U.S. e-commerce space, we’ve identified three main strategies the company uses to prepare for Black Friday, Cyber Monday and the general holiday season.
#1: Bolster staff and utilize innovative stocking practices at its warehouses
Though Amazon doesn’t make comprehensive information about their warehouses and fulfillment centers public, there were reportedly 96 U.S. warehouses as of spring 2015, and the company announced plans to open 18 new warehouses in Q3 of 2016. This new expansion is the direct result of the company falling short of earnings expectations last holiday season, when they had to resort to more expensive last-minute options to fulfill orders.
With so many new Amazon warehouses set to open, the company will likely have to go on another massive temporary hiring spree: Last year they hired 100,000 temporary workers in addition to the 90,000 employees already on hand, to help with the holiday rush. The short-term spike in the workforce will be particularly helpful in moving orders in cities that offer same-day and even one-hour delivery, a useful perk for holiday shopping that is quickly becoming expected by consumers.
But the size, scope and manpower of Amazon’s warehouses still aren’t enough to most efficiently deliver every order. Amazon is often on the cutting edge of new technology and techniques in this regard, and a few years ago pioneered the use of chaotic storage. Using a barcode-based inventory management system, Amazon warehouses were stocked in a manner that seems counter-intuitive at first: Items were placed wherever there was shelf space, even if that meant putting cookbooks next to children’s toys and light fixtures (or any other product stocked by the company and its third-party affiliates). By equipping employees with barcode scanners that could transmit that item’s location back to the central database, the management system could later tell workers exactly where that item can be found, and even draw the most efficient walking route to get there.
By utilizing relatively inexpensive but incredibly flexible and expansive barcodes, Amazon has made much of its supply chain transparent and easy to trace, which is what makes quick and consistent delivery of every item possible.
#2: Start the season early and spread the crush of the rush
Traditionally, Black Friday deals started the morning after Thanksgiving. But in recent years, behemoth retail stores like Best Buy (and smaller retailers as well) began to push back the start of “Black Friday” to the early morning hours, midnight, or even Thanksgiving night. Perhaps drawing inspiration from this idea, and not burdened with the constraints of regular business hours or tradition, Amazon has moved to start its holiday deals to the days leading up to Black Friday rather than waiting for the rush to come all at once.
Last year, Amazon decided to offer select holiday deals on the Friday before Thanksgiving, preempting some of the typical rush by a full week. It also continually added deals throughout that week, giving customers the opportunity to clean up and finish their shopping (and perhaps have their gifts waiting on their doorsteps) before Black Friday even begins.
On one hand, this is partially meant to lessen the crush of orders going out over that Black Friday weekend on beyond. But Amazon also made a point of offering deals specifically through their mobile app, or to issue deals on a rolling basis, or to make certain deals available to Prime members before the rest of the public. This keeps shoppers’ eyes on the site or app, and increases the possibility of impulse shopping. It both acts as a pressure relief valve and a way to promote more business, a true stroke of e-commerce genius.
#3: Set stricter rules for third-party seller use of its expansive infrastructure
Amazon has done a fantastic job expanding its catalog by encouraging third-party sellers to use its platform, even offering Prime delivery status to some products to boost sales. Around one quarter of all items Amazon sales are through its “Fulfillment by Amazon” program, which offers storage and shipping services to those merchants.
Unfortunately, not all merchants are familiar with how expensive and taxing it can be to manage a warehouse and cover the carrying costs of inventory. A balanced inventory turnover ratio is a crucial metric for most businesses, and is based on keeping enough inventory on hand to meet demand,but not too much that the fees associated with keeping those items safe and secure outweigh the benefits.
Last year, Amazon took a major hit on its profits during the holiday season, when third-party sellers overwhelmed their warehouses. Now Amazon is raising storage fees for the months of November and December, which will force those sellers to only send the inventory they are confident will sell to Amazon warehouses. Amazon will reduce storage fees for other months to offset this cost, and will also allow sellers to send Prime-eligible products from their own warehouses as well. This way, Amazon’s crunch-time shipping load will be smaller, while still featuring hundreds of thousands of items that Prime users can get delivered within a couple of days with free shipping.
As e-commerce continues to replace in-person shopping experiences as our primary mode of gift buying, during the holiday season and throughout the year as well, Amazon’s self-imposed burden (and record-setting profits) will only continue to grow. By using inventive stocking practices powered by simple yet effective barcode labels and scanners, widening the window of shopping deals, and imposing its efficient warehouse management policies on all third-party sellers, Amazon is prepared for Black Friday and Cyber Monday in 2016. As for the future of holiday shopping, Amazon has that covered too.
