By Krystal Hu and Jeffrey Dastin

NEW YORK, March 17 (Reuters) - Amazon.com Inc will only receive vital supplies at its U.S.

and UK and other European warehouses until April 5, its latest move to free up inventory space for medical and household goods in high demand as a result of the coronavirus outbreak.

The change does not mean Amazon will stop selling non-essential items like phone cases and toys for now, only that products may be more likely to run out of stock in the next few weeks or that sellers have to ship directly to consumers.

The move reflects how the global spread of the virus has created challenges for retailers, from supply chain to delivery.

In a note sent to sellers on Tuesday, Amazon said it is seeing increasing online shopping demand.

As its household staples and medical supplies are running out of stock, it will prioritize certain categories in order to "quickly receive, restock, and ship these products to customers."

Amazon defined several categories as essential products that can continue shipping, including baby products; health and household items; beauty and personal care; grocery; industrial and scientific; and pet supplies.

Books are included as well.

"We understand this is a change for our selling partners and appreciate their understanding as we temporarily prioritize these products for customers," Amazon said in a statement.

The company said the new protocol applies to its retail inventory as well as to the products of third-party sellers on its platform.

The move follows Amazon's Monday announcement that it will hire 100,000 more workers, as the world's largest online retailer is trying to meet growing online shopping need from people who stay home amid the coronavirus outbreak.

LESS AD REVENUE?

The news may hurt demand for lucrative services that Amazon offers to merchants, like advertising.

Amy Roskelley, owner of Utah-based Health Beet, said she pays Amazon around $1,000 a month to promote her flatware products that help consumers portion their meals.

Now that she can´t add inventory to Amazon´s warehouses, she plans to cut ad spend in half.

"It´s hard for me to justify spending money if I don´t have enough inventory to fill" customers´ orders, she said.

Roskelley is considering other ways to reduce her dependence on Amazon, too, whether shipping directly to customers or driving traffic to her own website.

"I have been concerned that they'll shut down Amazon´s warehouses and won´t ship out at all, and that would just devastate me," she said.

Amazon has yet to indicate any such closures.

Still, the months-long outbreak is posing challenges to the Seattle e-commerce company's operations.

Merchant Zengxie Pang said Amazon's change came just as the China-based seller's factories had resumed production.

"Now we can't ship to warehouses until April," Pang said.
"We are already seeing a rising demand for kitchen supplies, and they will likely run out of stock."

Chief executive of personal massager company LuLu, Michael Gawrychowski, said his supplier in China woke him in the middle of the night with news of Amazon's change.

"People are freaking out," he said.

Gawrychowski immediately sent a request for a 25,000-unit shipment. That was rejected, but a second request went through, he said.

Amazon's two-day shipping guarantee has in some cases slowed to up to seven-day delivery, Baird Equity Research analyst Colin Sebastian said in a note.
Tuesday's announcement aims to speed up the operation, at the risk of limiting the availability of non-essential items like electronics that typically are a big part of Amazon's business.

"This change will likely force some third-party sellers currently dependent on Amazon to shift sales to other marketplaces (eBay, Wish, Walmart, Facebook Marketplace, etc.), or onto their own websites," Sebastian said.

Customer searches for popular items including iPhone cases, AirPods and Apple Watch bands have fallen from the week prior, an indication of shifting shopper interests, according to research from Helium 10, which provides tools to sellers.

Workers at bars, gyms, theaters and other non-essential businesses have been furloughed to help contain the spread of the deadly virus, and President Donald Trump on Monday said the U.S.

economy may be sliding into recession.

For sellers, which account for over half of sales on Amazon, the new warehouse policy only adds to the economic uncertainty they are facing, said Chris McCabe, founder of Amazon seller consultancy ecommerceChris.com.

"Sellers are rethinking their entire strategies for selling in 2020," he said,

(Reporting by Krystal Hu; Additional reporting by Lisa Baertlein in Los Angeles; Jeffery Dastin in San Franscico and Elvira Pollina in Milan; Editing by Nick Zieminski, Lisa Shumaker, Sandra Maler and Cynthia Osterman)