Mighty Amazon proves vulnerable to supply chain and worker shortage

By Nathaniel Meyersohn, CNN Business

Amazon’s rise to power has been relentless for more than a decade, with regulators and rivals failing to slow it down. But now Amazon has taken a hit from a pair of steadfast forces: booming supply chains and worker shortages.

The company’s third-quarter earnings and sales were well below Wall Street projections. It was a rare failure for Amazon to drop its stock by about 3% on Friday at midday. Apple also said Thursday that chip shortages and manufacturing disruptions caused it to miss $ 6 billion in sales in the last quarter.

Buyers aren’t what holds Amazon back. The US economy remains strong and demand for online shopping is growing, but at a slower pace than last year, when stores were closed and everyone was stuck at home.

The problem: Amazon just can’t get all of its products to customers fast enough.

“This shows that it’s not the regulators or the competition that are slowing down Amazon, it’s the supply chain nightmare,” said Daniel Ives, technology analyst at Wedbush Securities.

Amazon said supply chain bottlenecks and inflation in the costs of raw materials, labor and trucking squeezed profits in its most recent quarter. These lingering problems will cost the company an additional $ 4 billion this quarter, slashing profits over the next holiday shopping season, the company added.

“We face work-related risks and supply chain disruptions like many other businesses,” Amazon chief financial officer Brian Olsavsky said Thursday on a call with analysts. “Certainly the cost of execution over the last few months and what we have planned for the next quarter is not what we are happy with. “

Olsavsky said staffing shortages at some warehouses in the last quarter forced him to redirect products to other facilities that were fully staffed but less convenient. This resulted in “less optimal placement, which leads to longer and more expensive transport routes.”

Amazon’s results and investor response are further signs of the massive impact of the supply chain crisis and hiring challenges. Small stores – without the scale to keep prices low in the face of high costs or the logistics networks to overcome supply shortages and delays – are hardest hit, according to retail analysts.

But these problems also plague corporate giants.

On average, 15% to 23% of products are out of stock in Amazon’s online marketplace, a historic high, according to Guru Hariharan, who has worked in Amazon retail for five years and runs CommerceIQ, an ecommerce analytics company that advises major brands like Kellogg, Colgate, and Duracell selling on Amazon. CommerceIQ tracks the out-of-stock rates of its range of customers on Amazon, which it then aggregates into a representative sample of a product category on the site.

Amazon declined to comment on the data.

The company stepped up promotions in October to encourage customers to shop early for the holidays. Pulling demand forward helps Amazon avoid an order crash later in the holidays, which can strain its delivery operations.

“It works better for us than making it all work in a few weeks focused around Cyber ​​Monday and Black Friday,” Amazon’s Olsavsky said Thursday. “Operationally, it’s easier to execute when the volume is spread out. “

He added: “I love it in October, but we will also take it in November and December.”

The company is also using more containers and moving cargo to new US ports to avoid blocked entrances on the west coast.

On the labor side, Amazon is increasing wages and suspending login bonuses to alleviate “inconsistent staffing levels in our operations,” he said.

Amazon is hiring 150,000 vacationers to meet demand. His starting average hourly wage is over $ 18, with an additional $ 3 an hour for some shifts in some locations and signing bonuses of up to $ 3,000.

Despite the difficult quarter and the challenges Amazon is facing, many analysts say it continues to gain market share over its competitors and remains in a stronger position than its competitors to deal with supply disruptions and work in progress. The company has also spent a lot in recent years to build new warehouses and increase capacity in order to speed up delivery times. Analysts expect these investments to benefit Amazon in the long run.

“We remain positive on [Amazon] longer term, and I think the supply chain issues and high shipping costs are temporary and non-structural, ”Mizuho Securities analyst James Lee said in a note to clients on Friday.

—CNN Business’ Clare Duffy contributed to this article.

The-CNN-Wire ™ & © 2021 Cable News Network, Inc., a WarnerMedia Company. All rights reserved.

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