During the pandemic, Amazon’s business has been a mixed bag.
While the company is benefitting from what it calls “unprecedented consumer demand,” it has also had to deal with supply chain issues and labor shortages that have put pressure on its balance sheet.
Amazon Spending Up on Labor
Amazon always hires extra workers during the busy holiday season, but this year the labor shortages that have caused Amazon to lose out on revenue and rising compensation will eat into the company’s fourth-quarter profits.
In its third-quarter earnings call, Chief Financial Officer Brian Olsavsky said that the company anticipates labor-related productivity losses and cost inflation to add $4 billion in operating costs to the fourth quarter.
That number was about $2 billion in the previous quarter. About a billion of that was tied primarily to wage increases and incentives in operations.
During the third quarter, Amazon’s inventory placement was “frequently” redirected to fulfillment centers that had the necessary amount of labor to receive the products. This led to longer waits and more expensive transportation routes for the packages it delivered.
The company is hoping that increased visibility will help offset some of the costs associated with the current environment.
Amazon’s Labor Loop
So Amazon may be stuck in a pretty bad loop here. Labor shortages are causing the company to lose out on economic opportunities, but the amount of money it needs to entice workers back into the job market is also costly.
“So when you look at retail, it’s certainly expensive right now, especially with the costs I’ve laid out in Q3 and Q4 for us to service that business. However, we have other monetization vehicles, including advertising that, if we do well, become a benefit to customers and to advertisers at the same time,” Olsavsky said.
