Amazon faces labor dilemma as e-commerce sales slow

Amazon, which has added hundreds of thousands of workers during the pandemic, faces a dilemma: how to cut its workforce to cope with slowing e-commerce growth without stoking social unrest and giving unions ammunition.

When the world’s largest online retailer announced its results on Thursday, it acknowledged that added logistical capacity to handle a surge in consumer demand from home had left it with too many workers and an overabundance of office space. warehouse.

With shoppers returning to their pre-pandemic spending habits, the company lost money in the last quarter, posting the slowest sales growth since 2001, and warned that revenue and profits would suffer during the current period.

The company’s stock fell 14% on Friday, with a loss in market value – $206.2 billion – that ranks among the worst in Wall Street history.

Amazon responded to the pandemic by doubling the size of its logistics network over a two-year period — a rapid build that outpaced competitors and partners like Walmart, UPS and FedEx. For a while, the Seattle company was opening a new warehouse somewhere in the United States about every 24 hours.

Many investors hoped Amazon would be able to boost profits once pandemic-related tensions eased, as the company had plenty of space and could slow spending on new facilities. Instead, Amazon has oversized and is now struggling with costs that outpace demand.

The company is unlikely to close its facilities as it remains committed to same-day and same-day shipping, a key objective now that many of its competitors are able to deliver products to customers within one or two days. . However, Chief Financial Officer Brian Olsavsky said this week that Amazon was slowing the pace of new construction, pushing back the opening of planned warehouses.

The labor challenge is greater. Earlier this month, a union started by a fired Amazon worker won a historic victory at a company warehouse on Staten Island in New York. On Monday, federal labor officials are expected to begin counting votes for an election at an Amazon facility across from the premiere. Even if the union loses the second vote, union organizers should try to organize other company warehouses across the country.

Amazon, the second largest private employer in the United States, has hired about 780,000 people over the past two years, increasing its workforce to 1.62 million. He also raised wages, paid bonuses for new hires and was willing to send out half-empty vans to ensure customers received their packages on time. It now needs to find a way to reduce its workforce and control its labor costs.

Attrition will almost certainly solve part of the problem. Amazon warehouse turnover is notoriously high, with many employees staying for less than a year due to the physical strain of standing at a workstation for a 10-hour shift. But the company also signaled that it was entering a period of belt-tightening.

“Our teams are fully focused on improving productivity and profitability across our fulfillment network,” chief executive Andy Jassy said in a statement Thursday.

In practice, this could mean fewer staff in warehouses and increased pressure on people picking up and packing items to speed up their work and make fewer mistakes.

“They have significant labor pressure, both blue-collar and white-collar,” said DA Davidson & Co. analyst Tom Forte.

In recent years, Amazon has tried to soften its reputation as a grueling workplace, touting an average starting salary of more than $18 an hour, along with new safety initiatives to reduce an injury rate above industry averages. industry. These programs could take a hit in an era of incipient austerity, potentially angering workers who already have a long list of unions eager to help them secure better working conditions.

Further social unrest, assuming it occurs, could prove politically perilous for Amazon. President Biden has voiced his support for making it easier to organize workers, while Senator Bernie Sanders, an Independent from Vermont, has proposed ending government contracts with companies that violate labor laws. While the proposal is unlikely to bear fruit soon, if ever, Sanders has scheduled a hearing on the matter next week.

It’s hard to gauge Amazon’s overcapacity, and some analysts think the massive warehouse expansion will help during peak times, including the Prime Day sale in July and the December holiday season.

“Expanding existing execution capacity may be one of the easiest issues for Amazon to solve in its history,” BofA Securities analysts wrote in a note to clients on Friday.