Amazon still playing COVID catch-up on fulfillment centers and staff
Investors, to the disbelief of many retail industry experts, were disappointed last week when Amazon.com reported a sales increase of “only” 27 percent in the second quarter. Executives from the retail and technology giant, which continues to churn out $100 billion-plus quarterly revenues, pointed out on last week’s earnings call that Amazon, in many ways, is still trying to catch up with the market opportunities that arose in 2020 from the COVID-19 chaos.
Amazon, which limited deliveries of some third-party sellers’ products at points last year, has since gone on a hiring spree while continuing to look for ways to expand its fulfillment capacity.
Said Brian Osalvsky, Amazon CFO, on the company’s earnings call last week, “Our operations network took time to step up to serve this growth in demand due to space constraints and our need to ramp up hiring quickly while prioritizing employee health and safety.”
He said unit volume out of Amazon’s fulfillment centers (direct and marketplace sellers) has doubled over the past two years. Fulfillment by Amazon has continued to increase in popularity with the platform’s third-party sellers, which accounted for 56 percent of all volume in the most recent quarter.
“We are not back to where we want to be on a number of dimensions,” Mr. Osalvsky told analysts. “We handled Q4 last year, we’ve been playing catch-up pretty much since the pandemic started. But what suffered is space and space constraints … It’s gotten better, but it was a factor last year.”
Andrea Leigh, vice president at Ideoclick and a former executive at Amazon, painted a slightly more alarming picture in an interview with Reuters. She told the news service that its continuing high sales growth rate has brought Amazon to a point where it “is running out of available space.” Compounding that problem is that it is “also running out of labor,” she said.
Amazon, as it has done in the past, is stepping up capital expenditures in the second half of the year to better meet continued growing demand. Increasing its capacity is likely to drive up costs and cut into profitability as the company pursues a pattern that has now played out over many years.
The company has continued to push faster fulfillment, including expanded one-day delivery.
- Amazon.com, Inc. (AMZN) Q2 2021 Results – Earnings Call Transcript – Seeking Alpha
- Amazon faces more than slowing sales growth: it needs more warehouses – Reuters
- Amazon forecasts slower growth as it laps last year’s insane online sales gains – RetailWire
- Do retailers have to catch up to Amazon’s logistics powerhouse? – RetailWire
- Is Amazon’s speed killing the competition? – RetailWire
DISCUSSION QUESTIONS: Do you think Amazon will face ongoing fulfillment performance issues due to lack of warehouses and/or employees to staff them? Are Amazon’s rivals dealing with similar challenges and how do you see this netting out for all the companies being affected?