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On Thursday, Amazon recorded its slowest sales growth in almost seven years as the pandemic-induced increase in online shopping waned.
The company’s profits declined, in part due to higher labor costs and more spending on new warehouses and other logistics infrastructure aimed at speeding up delivery times.
Amazon told investors to expect sales growth and profits to continue to tighten in the current quarter, which includes the holiday shopping season.
The company said sales in the three months ending September reached $110.8 billion, up 15 percent from the same period of the previous year. It made a profit of $3.2 billion, half as much as last year.
The results fell short of investor expectations, with Amazon’s stock falling more than 4 percent in aftermarket trading.
Amazon CEO Andy Jassy asked for patience in a statement. He said the pandemic has “resulted in extraordinary investments in our businesses to meet customer needs”—just one example is the fact that we have nearly doubled the size of our fulfillment network since the pandemic began.” He went on to say that he expects it to have additional costs.
The company is in the middle of what investment bank Cowen calls a “historic investment cycle.” Cowen estimates that in 2020 and 2021 the company will spend approximately $80 billion on logistics investments, compared to a total of $58 billion over the previous five years.
The company’s chief financial officer, Brian Olsavsky, said that for the first time since the start of the pandemic, the company has opened enough new buildings that it is no longer limited to the amount of space it has to store items in its warehouses. Instead, Amazon is limited by its ability to recruit and retain enough workers in its operations, as well as a labor shortage with partners such as trucking companies and ports.
Amazon has hired 133,000 new employees since June, increasing its workforce 30 percent from a year ago to 1.47 million, and expects further growth. In the past two months, it said it plans to employ 125,000 hourly workers and 150,000 seasonal workers in the United States before the holiday shopping frenzy, and has at least 55,000 open tech and corporate positions worldwide.
Amazon increased wages and offered bonuses to attract workers in the tight labor market, which, along with expansion, increased its costs.
Mr Olsavsky said the additional pay to workers added $1 billion to the company’s costs in the quarter, roughly half for wage increases and half for incentives such as $3 an hour for unwanted shifts and signing bonuses up to $3,000 per hour. He said the company also spent another $1 billion on other expenses related to labor shortages. For example, if a warehouse close to a customer didn’t have enough workers to process an order, sometimes the company had to ship packages over longer distances or by faster, more expensive methods.
He said he expects these costs to double in the current quarter to nearly $4 billion, calling them “shock absorbers” to serve customers as they expect. The company told Wall Street it expects to see the least operating profit in the next quarter.
Morgan Stanley analyst Brian Nowak estimates that by the end of the year, labor costs for each piece Amazon ships will be about 50 percent higher than the previous year.
Analysts expect hiring and new warehouses to be a long-term advantage for Amazon because it will speed up delivery times, which in turn allows customers to buy more from the company.
These increased costs came as customers slowed down what was booming in consumption. The number of units sold increased only 8 percent.
Some of Amazon’s most profitable businesses have performed well. Cloud computing businesses grew 39 percent to $16.1 billion as the pandemic accelerated the way companies adopt new technologies to run their businesses.
And the “other” division of business, primarily the advertising business, grew 50 percent to $8 billion.
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