camila October 29, 2021

PALO ALTO, CALIFORNIA (REUTERS) – on Thursday (Oct 28) reported a slump in profit that it expects will continue through the holiday quarter, as higher wages and spending to attract workers diminish the company’s windfall from online shopping.

Shares fell 4 per cent in after-hours trade.

After a year of blockbuster results, the world’s largest online retailer is facing a tougher outlook. In a tight labour market, it has boosted average US warehouse pay to US$18 (S$24) an hour and marketed bigger signing bonuses to attract the blue-collar staff it needs to keep its high-turnover operation humming.

The company is also contending with global supply chain disruptions. It has doubled its container processing ability, expanded its delivery service partner program and has ramped up its warehouse investments – all at a noteworthy cost.

Amazon said it expects operating profit for the current quarter to be between US$0 and US$3.0 billion, short of US$6.9 billion posted the year prior. In the third quarter, net income fell by about 50 per cent to US$3.16 billion, a first since the start of the pandemic in the United States.

Chief executive Andy Jassy, who took the helm in July, said in a statement that Amazon would incur several billion dollars of extra expenses in its consumer business to deal with higher shipping costs, increased wages and labour shortages.

Amazon is “doing whatever it takes to minimize the impact on customers and selling partners this holiday season”, he said. “It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”

The retailer has strived to prevent a repeat of the 2013 season when delays left some without presents on Christmas Day.

Retailers are facing supply constraints on everything from toys and Nike sneakers to laptops, making it difficult for them to stock their shelves.

Supply chain woes are also costing Apple US$6 billion in sales during the company’s fiscal fourth quarter, according to results released on Thursday. Apple chief executive Tim Cook said the impact will be even worse during the holiday sales quarter.

Labour shortage

Mr Guru Hariharan, a former Amazon manager who is now chief executive of CommerceIQ, said out-of-stocks were at an all time high for the company.

“The online marketplace will need to continue to address fill rates to meet demand before the holiday shopping season,” he said.

Amazon chief financial offer Brian Olsavsky said on a call with reporters that the labour shortage had been a challenge, leading to inconsistent staffing levels. Workers, not physical space, became its primary capacity constraint in the third quarter, he said.

And that has had a ripple effect.

“Inventory placement is frequently redirected to fulfillment centers that have labour to receive this product, which results in less optimal placement, which leads to longer and more expensive transportation routes,” he said.

Staff are pushing for more, too. Around 2,000 workers in New York City petitioned this week for a vote on whether to make their warehouse the company’s first unionised facility in the United States.

To juice sales, the company began encouraging customers to shop holiday deals as early as Oct 4 this year. Still, consumers have begun returning to pre-pandemic shopping levels, spending more on travel and services, Mr Olsavsky said.

The company forecast fourth-quarter sales to be between US$130 billion and US$140 billion. Analysts were expecting US$142.05 billion, according to IBES data from Refinitiv. It missed expectations for third-quarter sales as well, witnessing its slowest growth since the Covid-19 outbreak.

Amazon’s cloud computing division was a bright spot. Mr Olsavsky said revenue growth re-accelerated for that business, and the company beat analysts’ expectations with net sales of US$16.1 billion in the quarter. Amazon Web Services has also seen sales rise with demand for gaming and remote work during the pandemic.

Total net sales rose to US$110.81 billion in the third quarter ended Sept 30, from US$96.15 billion, a year earlier.

Analysts had predicted US$111.60 billion, according to Institutional Brokers’ Estimate System data from Refinitiv.