Business Insider has a story this morning about the degree to which inflation is affecting Amazon's retail business.
"The uncertainty over rising costs and consumer prices shows that even Amazon, a $1.1 trillion company obsessed with meticulous attention to detail, can be roiled by the rising inflation around the world — adding an unwelcome jolt to what has already been a volatile business environment since the pandemic started more than two years ago," the story says.
"Internal documents and employees who spoke with Insider shed light on the challenges Amazon has faced in the current inflationary environment. They show the retail business' dwindling margins and reliance on ad profits; consumer demand that fell short of internal expectations; and surging employee attrition that many attribute to below-inflation pay raises. These people spoke on the condition of anonymity because they're not authorized to speak to the press.
"Amazon's spokesperson didn't respond to a request for comment."
Business Insider notes that "rising costs are the most immediate fallout of inflation — a person familiar with Amazon's finances team said it's a 'big topic' internally.
"Those costs, which include higher gas prices, shipping fees, and employee salaries, directly affect Amazon's operations.
"In the first quarter, Amazon reported $6 billion in incremental costs related to inflation, lower productivity, and overcapacity issues, its chief financial officer, Brian Olsavsky, said during last month's earnings call. He said overseas shipping costs more than doubled compared with prepandemic rates, while fuel prices were 1.5 times what they were a year ago."
The story also points out that "it could have been worse, if not for Amazon's rapidly growing, high-margin advertising business, according to internal documents reviewed by Insider."
The story goes on:
"An executive recently said the retail team is scaling down on hiring targets this year until 'business accelerates' to reach certain growth targets. Amazon also plans to significantly curb the growth of its third-party delivery partners this year, following a two-year ramp-up period, Insider previously reported. Though Olsavsky said customer demand remained strong, Amazon announced it would stop expanding its physical and staffing capacity for now."
And, "Third-party sellers, who account for more than half of the products sold on Amazon, are learning to adapt as well. Shipping and fulfillment costs have increased significantly in the inflationary environment, causing sellers to raise prices or accept lower margins."
- KC's View:
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It isn't just Amazon, of course, affected by inflation. These issues are having an impact on almost every retailer. Amazon's problem at the moment is that its ambitions and aggressiveness over the past couple of years, given fuel by the circumstances of the pandemic, make it vulnerable to sharp shifts in consumer behavior and spending.
It occurs to me that while the leaders of all these retail companies have had to deal with recession before, the vast majority of them have not had to deal with in inflationary environment. They were kids the last time we had high inflation. (When I bought my house, in 1984, our mortgage carried a 13.75 percent interest rate. I cannot even imagine what we were thinking when we signed those papers…) We may find out what some of these retailer leaders are made of.
This includes Jeff Bezos.
I was interested to read a piece yesterday in The Information by Martin Peers, in which he wrote the following:
"What is happening to our world? Not only is the stock market in free fall (again), but Jeff Bezos appears to have been infected by a Musk-like bug that causes business executives to lose their inhibitions on social media. Today, for instance, as Amazon stock was dropping 7%, the Amazon founder was tweeting about how he’s been working hard on his 'ass.' You could say Bezos is no longer laser-focused on Amazon’s business. But then that’s been evident for a while.
"And sure, he’s no longer CEO of Amazon, but he’s still supposed to be executive chair of the company. Bezos could have spent time today tweeting on more sober topics. For instance, if he was monitoring the retail sector, he couldn’t fail to miss Target’s market-shaking quarterly earnings report, which emphasized rising costs and consumer anxiety. Or Bezos might have noticed New York state’s lawsuit against Amazon, alleging that it discriminates against pregnant employees and workers with disabilities. Not a good look for the e-commerce giant."
And this all comes after Bezos picked a fight with the White House on Twitter over the causes of inflation. (Bezos may indeed be right, but I'm not sure that he should be poking the bear, especially when the bear has regulatory power.)
But I digress.
It seems to me that this is a time for every retailer - not just Amazon - to double-down on the precept that it the best thing they can do to manage through the current tumult is to focus laser-like on the shopper's needs, desires, and concerns. This has to be communicated every day, to customers, employees and vendors, in a clear and consistent way. It should be about price … it should be about value (not the same thing about price) … it should be about values … and it should be about aspirations, which have not gone away just because the economy has hit a rough patch. People's aspirations may not be as high a priority as in the past, but that doesn't mean they don't have them. Retailers that can find a way to speak to and about all these concerns will find themselves in a more sustainable position and with more sustained relationships with their customers going forward.
