Amazon's Holiday-Quarter Forecast Disappoints as Labour, Supply Issues Mount

Amazon on Thursday reported a slump in profit that it expects will continue through the holiday quarter, as higher pay to attract workers and other operational disruptions diminish the company's windfall from online shopping.

Shares fell 4 percent in after-hours trade.

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

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

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

Andy Jassy, who became CEO in July, in a statement said Amazon was confronting higher shipping costs, increased wages and worker shortages.

These labor challenges, plus lost productivity and cost inflation, added $2 billion to Amazon's expenses in the quarter, an amount that's expected to double in the holiday period.

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.

Amazon's struggle to staff its warehouses spells challenges for rivals this holiday season. Retailers already have faced difficulty stocking their shelves with popular toys, gadgets and sneakers.

Supply chain woes are also costing Apple — $6 billion in sales during the company's fiscal fourth quarter according to results released on Thursday. Apple Chief Executive Tim Cook said that the impact will be even worse during the holiday sales quarter.

Michael Pachter, an analyst at Wedbush Securities, said Amazon's supply chain challenge surprised him because he believed the company had plenty of products on its shelves to swap for those stuck on container ships. -Reuters 

October 29, 2021