Amazon reported on Thursday that the decline in profits is expected to continue into the holiday quarter, as increased wages and other operational disruptions to attract employees reduced the company’s windfall from online shopping. The stock price fell 4% in after-hours trading.
After a year of sensational performance, the world’s largest online retailer faces a tougher outlook. In the face of a tight labor market, it has raised the average wage of its warehouses in the United States to $18 (approximately Rs 1,350) per hour and introduced higher signing bonuses to attract the blue-collar employees it needs to maintain a high-turnover business. At the same time, the company is responding to global supply chain challenges. It doubled its container handling capacity, expanded its delivery partner program, and increased its warehouse investment—all at a considerable price.
The company said that it expects operating profit for the quarter to be between 0 and 3 billion U.S. dollars (approximately Rs 224.4 billion), which is lower than the USD 6.9 billion (approximately Rs 516.12 billion) announced by Amazon last year. In the just-concluded third quarter, net income fell by about 50% to US$3.16 billion (approximately 236.37 billion rupees), the first time since the beginning of the US coronavirus pandemic. Andy Jassy, who became CEO in July, said in a statement that Amazon is facing rising shipping costs, rising wages and worker shortages.
These labor challenges, coupled with declining productivity and cost inflation, have increased Amazon’s spending this quarter by US$2 billion (approximately Rs 14,960 crore), which is expected to double during the holiday period. He said that Amazon “is doing everything possible to minimize the impact of this holiday on customers and sales partners.” “In the short term this will be expensive for us, but for our customers and partners, this is the right order of priority.” The retailer worked hard to prevent a repeat of the 2013 Christmas season, as the delay caused some people to have no gifts on Christmas Day.
Amazon’s efforts to staff its warehouses pose challenges for competitors this holiday season. Retailers are already facing the difficulty of placing popular toys, gadgets and sneakers on their shelves. According to the results announced on Thursday, supply chain problems also cost Apple US$6 billion (approximately Rs 44,880 crore) in sales. Apple CEO Tim Cook said that the impact of the holiday sales quarter will be more serious.
Michael Pachter, an analyst at Wedbush Securities, said that Amazon’s supply chain challenges surprised him because he believes that the company has a large number of products on its shelves that can replace products stranded on container ships. “I think they will be fine because of their choice,” he said. “Obviously this is not true.”
News Source : Gadgets 360
