The world's largest online retailer on Thursday reported $2
billion in incremental costs from having excess fulfillment and transportation
capacity, a dramatic shift from just two years ago when Amazon had to turn away
merchants' goods because it had room only for vital supplies.
The world's largest online retailer on Thursday reported $2
billion in incremental costs from having excess fulfillment and transportation
capacity, a dramatic shift from just two years ago when Amazon had to turn away
merchants' goods because it had room only for vital supplies.
The company is lowering its capital expenditure plans for
2022, its Chief Financial Officer Brian Olsavsky said. Amazon will spend less
on fulfillment projects this year than last, while transportation investments
will be flat to slightly down.
The new reality began to emerge halfway through 2021. Amazon
was on track to double its warehouse and delivery network, a feat necessitated
by consumers' embrace of at-home shopping to avoid COVID-19 infections in
stores. For the first time, space was not the retailer's main constraint; it
was labor to staff facilities fully. At Amazon's scale, that meant hiring
270,000 workers in six months.
After the Christmas holiday, consumer demand dwindled, as
always. Online sales dipped from a year ago, Amazon's results showed.
Brick-and-mortar stores beckoned shoppers once the Omicron wave subsided, and
still others faced a choice between buying goods and filling their cars with
high-priced gas. Amazon says order patterns have remained the same.
Nevertheless, Olsavsky told reporters the company appeared
to be "overbuilt for current demand." He said Amazon had no regrets,
later telling analysts: "Many of the build decisions were made 18 to 24
months ago, so there are limitations on what we can adjust mid-year."
David Glick, a former Amazon vice president who is now chief
technology officer of the on-demand fulfillment company Flexe, said extra space
was no major challenge.
"Amazon may have gotten a little ahead on fulfillment
capacity, but they will grow into that excess capacity over the next
year," he said. A new program for Amazon to store and ship goods that
independent merchants directly sell to consumers, known as Buy with Prime, may
help, too.
Amazon will eventually need these warehouses, agreed Michael
Pachter, an analyst at Wedbush Securities. But Amazon's disclosure provided
little solace.
"Didn't they see this coming when they built all these
fulfillment centers?" Pachter asked, noting how Amazon doubled over two
decades of capacity in just 24 months. "Why not do it in 48?"
Operating income fell 59% to $3.7 billion in the first
quarter, while a decline in Amazon's shares in electric vehicle maker Rivian
resulted in the company's first net loss since 2015.
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