Amazon Delivers Some Negative News for The Economy
For many years, Amazon’s report followed an unrestricted growth strategy. The e-commerce giant has grown steadily since entering the market in 1994, eliminating numerous independent shops in the process and capturing 45 percent of the American e-commerce market by itself.
Periods of explosive expansion are frequently followed by a slowdown, if not a crash. Amazon has had difficulty in the past year with issues including staff retention and a rising call for unionisation among employees.
However, some issues have also overestimated how long the pandemic’s internet ordering boom would persist.
Overestimating Demand
Amazon reported its first quarterly loss in over seven years back in April, and Chief Financial Officer Brian Olsavsky claimed that the company had overestimated the need for warehouse space.
In the conference call, Olsavky informed investors and analysts that “we’ve pulled down our build estimates.” Again, keep in mind that many build decisions were taken 18 to 24 months ago, so there are limits to what we can change in the middle of the year.
According to a recent investigation by RetailDive, Amazon failed to open at least 13 of the warehouses that it had intended to around the nation in the previous year.
Some were shelved completely, others were shelved indefinitely, and yet others were only briefly postponed.
These include a 2.8 million square foot warehouse that was fully abandoned in Salinas, California, and a fulfilment centre whose start date was pushed back from 2022 to 2024 in Sioux Falls, South Dakota.
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What Do Warehouse Cancellation Mean for the Economy?
Each cancellation has a somewhat different meaning. Sometimes supply chains make it challenging to deliver the required construction materials on time, while in other instances Amazon determined that there was simply insufficient demand to warrant another warehouse.
A local community chamber of commerce in Davenport, North Dakota, commented on the postponed warehouse plans in their area by saying, “It is usual for developments of this size to have circumstances that effect their timeline along the road.” We recognise that Amazon is having supply chain problems, just like many of our neighbourhood employers are.
However, there are indications that the boom that was witnessed in the early stages of the epidemic may finally be coming to a stop (remember getting everything from fruit and wine to covid tests online to avoid making an additional trip outside?)
Compared to other e-commerce companies, such as Etsy (ETSY) – Get Etsy Inc. Report, Shopify (SHOP) – Get Shopify Inc. Class A Subordinate Report, and Wayfair (W) – Get Wayfair Inc. Class A Report, Amazon shares have fallen more than 36% over the past year.
Evercore ISI analyst Mark Mahaney, known for betting heavily on Amazon, recently lowered his price estimate for the stock of the company.
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What Steps Do We Take Next?
E-commerce increased from accounting for 10.3% of all global expenditure in 2019 to 14.9 percent at the height of the pandemic in 2020 before declining once again to 12.2% in 2021, according to research from the International Monetary Fund.
However, in Amazon’s case, moderate stabilisation can result in the kind of overestimating that caused the company to make some mistakes toward the end of the pandemic. This is not to say that everyone gave up on online sales and went straight back to the stores.
Researchers Joel Alcedo and Alberto Cavallo found that “the share of online expenditure surged and declined most substantially in those economies and industries where e-commerce was already growing before the pandemic.”
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