What Ama­zon wants for Christ­mas: 100,000 temps

▶ ▶ It’s get­ting tougher for Ama­zon to meet hol­i­day-sea­son de­mand ▶ ▶ “They would have to build an en­tire dif­fer­ent in­fra­struc­ture”

Bloomberg Businessweek (North America) - - Contents -

The day be­fore Thanks­giv­ing, Nam Paan dressed for his job in­ter­view in a black hooded sweat­shirt and match­ing sweat­pants. The 24-year-old walked into a ho­tel near the Seat­tle-ta­coma In­ter­na­tional Air­port, and one hour and proof of ID later, he had a gig at an Ama­zon.com ware­house. The $12.35 an hour will help pay for his ma­chin­ing classes at a nearby tech­ni­cal col­lege.

Paan is among the 100,000-plus peo­ple Ama­zon says it’s adding to its work­force dur­ing this hol­i­day shop­ping sea­son, roughly dou­bling its ware­house head count. Out­posts such as the ho­tel serve as tem­po­rary re­cruit­ing cen­ters for peo­ple will­ing to spend a few weeks a year mov­ing items from shelves to boxes in gru­el­ing shifts. As Ama­zon’s over­all busi­ness has grown—fourthquar­ter rev­enue is ex­pected to rise 23 per­cent this year, to $36 bil­lion— so has its reliance on th­ese feeder sys­tems. The com­pany used 80,000 sea­sonal work­ers last year, up from 70,000 in 2013 and 50,000 the year be­fore.

Ama­zon’s de­mand for temps is start­ing to test the lim­its of the sup­ply. That means more money for work­ers and the staffing agen­cies that tech­ni­cally em­ploy many of them: Ama­zon is pay­ing more than dou­ble what it paid for ware­house temps in 2012, wage data from re­searcher Ibis­world sug­gest, while its pro­jected rev­enue is up 69 per­cent. Temps’ wages have out­paced in­fla­tion, in­creas­ing 2.6 per­cent a year in that time. Ibis­world says they’ll rise 3.4 per­cent a year for the next three years.

Ama­zon will “just have to deal with higher pay rates, which can squeeze profit mar­gins,” says Michelle Ho­vanetz, an Ibis­world an­a­lyst. Partly be­cause of un­cer­tain la­bor ex­pen­di­tures, the com­pany’s pro­jected range for its fourth-quar­ter profit is ex­tremely broad, any­where from $80 mil­lion to $1.3 bil­lion, vs. $214 mil­lion last year. Ama­zon de­clined to com­ment.

The heavy lifting for re­cruit­ing falls to Ama­zon con­trac­tors such as In­tegrity Staffing So­lu­tions, which hired Paan and sup­plies short-term la­bor for Ama­zon in at least 15 states. The temp agen­cies han­dle back­ground checks, tax fil­ings, and le­gal is­sues, in­clud­ing in­juries and un­em­ploy­ment claims. “If Ama­zon is go­ing to do this them­selves, they would have to build an en­tire dif­fer­ent in­fra­struc­ture,” says Robert Capo Jr., a for­mer man­ager for In­tegrity, based in Newark, Del.

SMX and Kelly Ser­vices also send Ama­zon thou­sands of sea­sonal work­ers each year, but In­tegrity got in ear­lier. The com­pany, founded in 1997, landed its first con­tract with Ama­zon that year. “We did things oth­ers weren’t will­ing to do,” Chief Ex­ec­u­tive Of­fi­cer Todd Bavol told a lo­cal ra­dio sta­tion ear­lier this year. Fi­nan­cial de­tails are scarce, but Bavol told the Philadel­phia Busi­ness Jour­nal in 2009 that the com­pany’s an­nual rev­enue was $84 mil­lion and would be $300 mil­lion by 2014. In­tegrity de­clined to com­ment for this story.

While the other staffing com­pa­nies’ fi­nances are sim­i­larly opaque, ex­ec­u­tives at True­blue, which owns SMX, said last year a con­tract to staff a sin­gle Ama­zon-size ware­house is worth $2 mil­lion to $3 mil­lion a year. This year some temp agen­cies have be­gun hand­ing work­ers a $500 sign­ing bonus. “Stuff Your Pock­ets With Cash,” reads a Thanks­giv­ing-themed poster ad­ver­tis­ing jobs with SMX in Newark, Calif.

This in­dus­try of mid­dle­men pro­vides huge sav­ings for Ama­zon and other com­pa­nies with heavy hol­i­day la­bor needs, such as United Par­cel Ser­vice and Fedex. That’s be­cause the pay­roll taxes that busi­nesses cough up for un­em­ploy­ment in­sur­ance can range widely de­pend­ing on how of­ten an em­ployer lays peo­ple off. The gov­ern­ment doesn’t fac­tor in temps, so com­pa­nies like In­tegrity take the tax hit, let­ting Ama­zon base its rates only on the 90,000 per­ma­nent staff at its 70 U.S. ware­houses and ship­ping hubs.

The dif­fer­ence in taxes paid per worker is mi­nus­cule, but the to­tal is about $100 mil­lion a year for a com­pany Ama­zon’s size, based on an anal­y­sis by Bloomberg us­ing un­em­ploy­ment in­sur­ance rate ranges in 28 states where Ama­zon has ware­houses. Un­til it can build ro­bots with the dex­ter­ity to ef­fi­ciently pick items off a shelf, it’s worth it to Ama­zon to keep sea­son­ally hir­ing and fir­ing through third par­ties. “They are only us­ing work­ers

ex­actly when they need them,” says Susan House­man, se­nior econ­o­mist with the W.E. Upjohn In­sti­tute for Em­ploy­ment Re­search, a re­searcher that ad­min­is­ters un­em­ploy­ment pro­grams.

Con­di­tions aren’t great. Many sea­sonal work­ers end­lessly cir­cle ware­houses as large as sev­eral foot­ball fields, with hand­held scan­ners di­rect­ing them to their next item and tick­ing down the sec­onds each task should take. The chal­leng­ing con­di­tions have drawn crit­i­cism from la­bor ad­vo­cates for years. In 2013 a temp work­ing in an Ama­zon ware­house in New Jer­sey was crushed to death in a pack­age-sort­ing con­veyor sys­tem.

Temps tend to have fewer la­bor pro­tec­tions than full-timers, and the prob­lem is grow­ing as they ac­count for 2.1 per­cent of the U.S. work­force— an all-time high, ac­cord­ing to the Depart­ment of La­bor. Com­pa­nies like Ama­zon “are in­sti­tu­tion­al­iz­ing a per­ma­nent tier of tem­po­rary work­ers,” says Erin Hat­ton, a so­ci­ol­ogy pro­fes­sor at the Univer­sity of Buf­falo. Dave Clark, Ama­zon’s se­nior vice pres­i­dent for oper­a­tions and cus­tomer ser­vice, told Bloomberg TV in a Nov. 30 in­ter­view that temps are paid mar­ket rates and have a chance at full-time jobs.

At the Seat­tle-ta­coma air­port ho­tel,

In­tegrity’s new re­cruits had vary­ing expectatio­ns. A land­scaper wanted to sup­ple­ment his in­come dur­ing the win­ter. A woman who re­cently lost her jan­i­to­rial job said she hoped the com­pany would hire her full time. A fa­ther of three, un­happy with his gig as a press op­er­a­tor for a pack­ag­ing sup­plier, was look­ing to climb Ama­zon’s ranks to a man­age­ment po­si­tion. Some, hired on the spot, be­gan work­ing the next day, while most of the coun­try was sit­ting down for Thanks­giv­ing din­ner. �Adam Satar­i­ano and Spencer Soper

The bot­tom line Ama­zon’s boom year means a swell in temps, which cuts into profit—though not as much as putting them on staff would.

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