Member Exclusive   //   November 17, 2022

Amazon Briefing: What Amazon layoffs say about its changing priorities

This is the latest installment of the Amazon Briefing, a weekly Modern Retail+ column about the ever-changing Amazon ecosystem. More from the series →

This is the latest installment of the Amazon Briefing, a weekly Modern Retail column about the ever-changing Amazon ecosystem. To receive it in your inbox every week, sign up here.

Amazon is preparing for a slowdown amid reports that the tech giant is set to layoff thousands of employees this week in what is estimated to be the largest ever restructuring in the company’s history.

According to multiple media reports, Amazon is allegedly planning to let go of up to 10,000 employees across its retail, devices and human resources divisions, as the company considers a thorough cost-cutting assessment under the leadership of CEO Andy Jassy. Given the deteriorating economy, last month, Amazon Founder Jeff Bezos also said that it is indeed time to “batten down the hatches.” Modern Retail reached out to Amazon for comment about the layoffs but did not receive a response until press time.

Analysts said the job cuts signal a grim future outlook for the company — and this isn’t the only money-saving move of late. In the beginning of November, Amazon also put a halt to any additional new hires in its corporate workforce.

It’s a stark change for the once-money flush company. Amazon has seen a significant erosion in its profitability, has seen other parts of its business slow and has lost market share in the retail sector. The demand peak brought on by the pandemic has passed, setting a wider slowdown in e-commerce across the world. While Amazon’s revenue growth rebounded to double digits in the third-quarter, it still faces a bleak future as the holidays approach.

This is a significant shift for a business that valued itself on innovation and not being afraid to do things that fail. And it likely means this new Amazon era focuses more on returns on investment, leaving considerably less space for error in execution.

“The layoffs indicate that Amazon is experiencing and forecasting much weaker growth across its business,” said Neil Saunders, managing director, retail at consulting firm GlobalData. “This is occurring at a time when costs are rising, so it is having to tighten its belt to improve profitability.”

Amazon said it expects revenue to grow between 2% to 8% in the fourth quarter, while operating income is projected to range from $0 to $4 billion. Jassy said that there are certainly a lot of things going on in the macroeconomic climate, and as a result, Amazon will balance its investments to be more efficient without jeopardizing its long-term, strategic commitments. Jassy also noted that Amazon was making steady progress in lowering costs in its fulfillment network.

Juozas Kaziukėnas, founder and CEO of Marketplace Pulse said the rumored layoffs will probably hasten Amazon’s transformation from a retailer to a marketplace business. “Amazon’s layoffs appear to include retail folks. I assume most of those are Amazon’s first-party retail people, not the marketplace teams… The marketplace is more profitable, takes less people to run and has been growing in sales mix percent consistently over the years — it was 58% of all sold units on Amazon in Q3,” said Kaziukėnas.

Amazon isn’t the only company making cost-cutting moves. Last week, Facebook-parent Meta announced it will layoff 13,000 employees and extend its hiring freeze until first-quarter. “Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I’d expected,” CEO Mark Zuckerberg wrote in a company note.

Shannon Warner, partner for retail and consumer at business consulting firm Kearney, said Amazon likely expects some slowness across its devices and retail lines of business, because of inflation and a looming recession. “Amazon’s single greatest competitive advantage is that they are customer obsessed. I expect as long as they believe they can create value and deliver against their customers’ needs and wants, they’ll stay in those businesses,” said Warner.

During its latest earnings call Amazon’s Chief Financial Officer Brian Olsavsky warned that widespread inflation, increased fuel prices and rising energy costs have impacted the company’s sales growth. To counter rising costs, Amazon has increased the fulfillment fees it charges sellers by over 30% since 2020, data from Marketplace Pulse showed.

The growth of Amazon over the next five years will appear very different from how it did over the previous five said Aaron Sorensen, partner at Lotis Blue Consulting. “These are good proactive management practices to position the company for future growth by strategically transforming their cost structure and focusing resources to businesses that are most differentiated and profitable,” he said.

The Seattle-based tech giant has added more than 450 warehousing and fulfillment centers to stock, sort and move items over the last two years. But as e-commerce sales have slowed in recent months, Amazon has been left with more warehouse space than it needs. Amazon has tried to pivot and monetize these spaces with a new paid service to let sellers use its fulfillment centers and warehouse space for long-term stockpiling and automated distribution.

According to Saunders, Amazon is unlikely to make cuts to services that directly affect customers, such as shipping or delivery, where Amazon needs to maintain high standards and reliability. “Reductions are more likely in areas looking into new ideas and solutions or at severely underperforming units,” he added.

Ultimately, Amazon is adamant about keeping expenses down as it gets ready for economic volatility, as the company anticipates that growth will not come easy. “It’s change of trajectory is a warning for others in retail, but it is also an opportunity for more nimble players to examine how they can take some share,” said Saunders.

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