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There go the profits. Amazon to spend $4B on coronavirus response.
Amazon.com reported higher revenues and lower earnings during the first quarter. The financial results were expected as the e-tailing and tech giant saw sales demand and expenses increase as it sought to keep up as the novel coronavirus across the U.S.
“From online shopping to AWS to Prime Video and Fire TV, the current crisis is demonstrating the adaptability and durability of Amazon’s business as never before, but it’s also the hardest time we’ve ever faced,” said Jeff Bezos, Amazon founder and CEO, in a statement.
Mr. Bezos and Amazon have encountered criticism from within and outside the company recently over everything from its ability to fulfill orders to the safeguards it has put in place to protect the health of workers in its fulfillment centers and Whole Foods stores.
“If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small,” said Mr. Bezos. “Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe.”
Among the steps Amazon is taking to protect its workers and customers include acquiring 100 million face masks. All Amazon and Whole Foods associates, drivers and support staff are required to wear masks on the job. Within the next week, Whole Foods will also begin offering free disposable masks at store entrances to any customers who are not wearing one of their own.
In an interview with CNBC, Amazon CFO Brian Olsavsky said that Whole Foods saw a spike in sales in March. The grocery chain, which saw its physical same-store sales increase eight percent for the first quarter, was trending at about a one percent gain before the COVID-19 outbreak caused traffic to jump.
On an earnings call with analysts yesterday, Mr. Olsavsky addressed the logistical challenges Amazon is facing keeping up with increased demand online.
“It’s really a combination of how long it takes to get things in stock, picked, packed and shipped. The shipping is still pretty fast and is still coming quickly. It’s taking longer to get things into our warehouse and out of our warehouse. So that’s really the challenge right now is to speed that up,” he said.
- Amazon.com Announces First Quarter Results – Amazon.com
- Making masks available to Whole Foods Market customers nationwide – Amazon.com
- Amazon’s COVID-19 blog: daily updates on how we’re responding to the crisis – Amazon.com
- Amazon.com, Inc. Q1 2020 Results (Earnings Call Transcript) – Seeking Alpha
- ‘If you’re a shareowner in Amazon, you may want to take a seat’ — Amazon reports earnings, plans to spend all Q2 profits on coronavirus response – CNBC
Discussion Questions
DISCUSSION QUESTIONS: How well do you think Amazon has responded to the coronavirus outbreak in comparison to its “essential” retailing peers? Will Amazon’s announced investments to protect workers and customers help the company gain favor within and outside its organization?
Poll
BrainTrust
Dave Bruno
Director, Retail Market Insights, Aptos
Gregory Osborne
Director of Partnerships, Operations, and Legal, MarketDial
It’s easy to be cynical about Amazon’s intentions, but let’s at least give them credit for putting their money where their mouths are. Without question Amazon has made many missteps during this crisis, as noted in the article. But they get full credit for this action. Are they simply buying love? Perhaps, but during these times, it’s a gesture others won’t or can’t make. Well done Amazon.
While I have long been an admirer of Amazon’s relentless ability to effectively execute, Amazon has clearly struggled during the pandemic. They have poorly managed the health and safety of their fulfillment center workers, and fulfillment/supply chain management issues are rampant. I am glad to hear Jeff Bezos’ declaration of his intent to “go big” to correct the issues, and while I am doubtful that they can throw enough money at it to make all the problems go away, given their track record, I do expect to see marked improvements soon. Most importantly, I sincerely hope they can keep their fulfillment center staff healthy and safe.
Considering their size and the breadth of product they carry, I think Amazon has done remarkably well. Their deliveries to my household have been as promised, sometimes better. And I don’t blame them for lack of toilet paper and masks. Turns out they suffer from some of the same supply chain anomalies as the rest of retail. And now they are investing heavily in the safety of their employees and customers.
I continue to think that Amazon could be a significant factor in a re-imagined mall experience. I long argued that they should buy Sears. Not for Sears itself, but for the immediate and widespread mall exposure it would give them. The way Amazon could anchor a mall would be a huge step in an evolved mall experience for everybody.
The media says “awful, awful, awful.” The P&L says “we have taken this seriously.”
Every company, city, state, and this entire country has been behind in responding appropriately to this threat. It has created unforeseen health issues and executional issues. What happened yesterday really doesn’t matter at this point. What matters is how we go forward.
I have no doubt Amazon will make every effort to “do the right thing,” clearly at the expense of profits. I also have no doubt that there will be missteps and those missteps will be blown all over the media.
Amazon employs 750,000 people. Over the last several years they have been rated as one of the best companies to work for. They must be doing something right with their employees.
Amazon was light years ahead of its competition with positioning its business to be sustainable during a potential pandemic, and it is reaping the benefits of that now. With regards to its actual, “action-taken” response so far – in my mind it has been at or perhaps just below the level of some others, but its pre-pandemic position was so strong that there hasn’t been notable impact. Its investment announcement will reinforce the decision of existing buyers and give them some grounds to defend their support of the brand, but won’t help gain new favor or customers. Amazon knows these are times of customer retention, and is implementing strategy accordingly.
Amazon is doing a great job in both keeping the business going and delivering for customers, and in its wider social and community initiatives. Certainly there have been challenges and mistakes during the crisis, but show me any business or organization that has managed this crisis perfectly. Everyone is learning as they go along.
Commentators are often cynical of Amazon because it is a large corporation. However, that size has only come about because Amazon has given customers what they want. Amazon’s nimbleness and innovative spirit have allowed it to grow and I suspect that this culture will accelerate as we move into a post-coronavirus retail world. That should be applauded and learned from, not criticized and carped about.
What’s interesting is that, like Walmart, Amazon is now ramping up its efforts in being a good social citizen. A lot of investment is being made in areas like sustainability, community initiatives, supporting small businesses, scientific research, and so forth. This is only possible because Amazon is a successful corporation; struggling businesses can’t provide these benefits as they lack the resources to do so. In that sense, Amazon’s success is to the benefit of everyone.
So now they can be benevolent after they have been predatory? Look for more calls for their breakup as they are now being seen more as a utility than a retailer.
A rare area of disagreement between us! I don’t believe they are a utility in any way shape or form. I also don’t think they are predatory. Competitive yes, but then so are Walmart and many other large retailers.
My biggest issue with Amazon during the COVID-19 crisis has been their reliance on third-party vendors who treat the site as the Wild West. I have three canceled or severely delayed orders for sanitizing wipes, masks and (yes) toilet paper — all of which have been subject to price-gouging, phony tracking numbers and eventual non-delivery. (And you still can’t buy many of these products directly from Amazon’s fulfillment centers.) Amazon has risked its hard-earned reputation for execution and fair pricing by not policing its own site more rigorously.
That’s absolutely a fair point, both in general and as exacerbated by this crisis. That said, it’s completely separate from its efforts to take care of workers, which is a big PR win.
Amazon is often held to a higher standard due to their size, visibility, and the very public “discussions” between the founder’s involvement in the press and the current administration. Fair enough — you can accurately say “they asked for it.” But we should also consider that everyone started on the same foot with COVID-19 — their back foot. And some situations were more difficult to address than others. Some of us who have professional jobs and already worked from home have finding toilet paper and not dining out as our biggest challenges. All manufacturing and other high population, close quarters operations companies have had a hard time with employee contagion. It’s no different than schools (which we can close) and prisons (which we can lock down). But give Bezos this — when he commits to something he goes big. And he usually accomplishes his goals.
I am not sure that Amazon’s announcement will gain favor within or outside the organization, but if they didn’t mention this, the press would be all over them. I feel that if companies aren’t speaking about how they are protecting their associates and customers, they will receive a big blowback both from the media and from consumers.
Amazon is spectacularly positioned for this pandemic, given its bold, long-term vision, technology prowess and timely solutions for cocooning consumers (and, with AWS, their companies, too).
While lower earnings aren’t ideal, Amazon is wise to invest its operating profit in protecting workers and consumers – and its reputation. Reallocating all $4 billion to a COVID-19 response to minimize health risks along the supply chain is a big PR win to assuage critics by showing prudent leadership, compassion and care.
Reallocating this money also helps Amazon gain a competitive edge. Hiring more workers will help Amazon reach more doorsteps faster now that brick-and-mortar stores seem riskier than staying home and shopping online. Replacing consumers’ habit of visiting physical stores with shopping online is Amazon’s real win by directly threatening rival Walmart’s strength: its bounty of stores.
You nailed the business case for this move, Lisa. I’m already reading shareholder group discussions of support for the move as well. Bezos knows his investor base is oriented to the long term. That gives him the freedom to make these kind of investments — shareholders know that $4 billion and more is coming back to them eventually.
From Day 1, Bezos’ position has always been long term. Year after year he was criticized by the street for not making money. He certainly has the last word on that one. As a result, Amazon investors are long term investors and believe the leadership will make the correct LONG TERM decisions.
The money Amazon is spending is an investment in its future. It wants to reinforce its position as the leading e-retailer when the pandemic becomes less of a factor in our lives. To do that it has to keep its employees safe, make sure the most needed items get where they need to be quickly, etc. Like with all retailers there have been some mistakes made but think where we would be if Amazon had not existed during this crisis.
There is no doubt that Amazon has made some missteps during the pandemic and likely waited too long to take seriously the health and working conditions of their fulfillment center employees in particular. Their announcement to spend $4 billion to “make this right” for their employees and everyone they touch in some way demonstrates the unique position Amazon is in. What other retailer is in a position to make that claim and declare that it will be done at the expense of profit? It’s true that they are an easy target for the media, sometimes deservedly so. At the same time, they seem to keep their customers happy enough to keep coming back so they must be doing something right. Amazon was the best-positioned retailer at the start of the pandemic but I don’t think they’ve held on to that title. No one has been exemplary throughout this crisis, although we do hold Amazon to a higher standard. I expect their stated investment will bring about change, and I believe they are better positioned to accomplish those improvements than most others given what we have seen from them in the past. So while we have learned through this crisis that e-commerce is not the panacea once thought for “unlimited sales,” Amazon is showing their ability to adapt even after the missteps.
We have to give Amazon and other large retailers the benefit of the doubt when it comes to putting their best foot forward. They are BIG and that makes them an easy target. The Amazon announcement will show they are serious about keeping workers safe and serving their customers.
Haven’t seen anyone (company) getting the logistics and supply chain of delivering to the peak online demand perfectly, so I give high marks to Amazon (and others) for managing well within trying times. If I asked the question, who would you rather see responsible for the distribution of urgent supplies, Amazon or the Government, the answer I bet would not be surprising.
I do see a number of “how well Amazon treats their associates” anecdotes both positive and negative, so I hope they do raise the bar on that aspect of business, wherever they really fall on the spectrum. I’m betting whatever their standing is, they are way ahead of our meat processing companies … just to keep things real here. So spending all that money on improving the business model, and hopefully making life better for associates … that fits the Amazon model of progress over profits. I like it.
Though Amazon has seen is share of criticism in this pandemic, more and more Americans are relying on their resilient and robust operations. And though this initiative may be designed only to engender goodwill, it will likely protect Amazon workers and it may protect operations from a stronger second wave of infection in the fall.
Peers? hmmm … Amazon is in a different position than most of its “essential” brethren in that its sales are mostly online, so it doesn’t have the customer exposure issues that Walmart or Home Depot has. The exception of course is Whole Foods, but that’s really a small part of Amazon, and I’m unaware of anything remarkable going on there.
Offsetting these advantages is that they are a huge company whose every move attracts publicity.
Will these “investments” gain favor? I would hope not: they seem like the least that could be done; we don’t give handclaps for having fire extinguishers or first aid kits on hand and I don’t see this as being much different.
Craig, I think what makes this remarkable is the magnitude. How many companies would be willing to give up $4B … or an entire quarters’ worth of operating profit? I’m guessing zero. As a publicly traded company, there will be visibility to how this money gets invested — ultimately Amazon’s actions will speak louder than this announcement. But you have to admit, it’s a pretty audacious announcement.
Thanks Mark. “Audacious” … Would we expect any less from Amazon? I would hope perhaps naively that any and every company is spending what is necessary “getting products to customers and keeping employees safe.” So the difference, as you note, lies with the magnitude … in the attention being given. I wish all the Amazonians well.
This is a bold and smart move, especially in an era where worker safety and community relations are a key part of marketing and Trump has Bezos in the cross hairs. Building goodwill now is an excellent move, especially in light of the gutting of the local store. Luckily, Amazon has the cash flow generators in AWS, marketplace and ad products to do this where other companies can not. At a time when people are considering whether Amazon has become a utility, it’s best to be seen as a benevolent force.
Amazon absolutely needs to deal with the worker health and safety issues that have been reported. But this is hardly the first time Amazon has given up profits to try to recruit every consumer out there. Amazon’s actions should light an even bigger fire under Walmart, Target, grocers who are expanding beyond groceries and every other merchant who hopes to become more essential to consumers.