‘Take some risk off the table’
Amazon founder’s stark warning of coming recession
Amazon executives would have been forgiven for choking on their morning coffee when they heard Jeff Bezos speaking on CNN this week. Asked whether consumers should “batten down the hatches”, the company’s billionaire founder issued a stark warning about the coming recession.
“My advice to people is take some risk off the table,” Bezos said.
“If you’re an individual and you’re thinking about buying a new largescreen TV, maybe slow that down. Keep that cash, see what happens. Same thing with a refrigerator or a new car, or whatever.”
Though undeniably prudent, his suggestion may not have thrilled colleagues at Amazon, which sells more than a few TVS and fridges. The comments succinctly sum up the problems facing the online retail giant this festive season, with a chill wind blowing for retailers.
Normally, Amazon could expect rip-roaring trade in the final months of the year, which cover Black Friday, Cyber Monday and Christmas.
But with consumers and businesses tightening their belts, Amazon faces a lean festive season this year.
It has lowered expectations for the fourth quarter of 2022, predicting sales of between US$140 billion (NZ$227B) and US$148B — well below the US$155B expected by analysts.
That would represent sales growth of between 2 per cent (pc) and 8pc when compared to 2021, below the 9pc achieved a year earlier.
Amazon itself appears to be taking its founder’s advice and battening down the hatches.
Andy Jassy, the former Amazon Web Services boss who succeeded Bezos as chief executive last year, has vowed to slash costs across the business while remaining laser-focused on “value and convenience”.
On Monday, it was claimed the company is preparing to lay off some 10,000 staff, just days after Facebook owner Meta also announced it was cutting 11,000 jobs and Twitter axed more than 3000 roles. While just a fraction of Amazon’s 1.5m workforce around the world, the cuts signify that Jassy is worried about the prospects for the month ahead.
The worsening economic picture is an added headache as Jassy seeks to fend off demands for higher pay from UK and US workers, who are seeking to unionise.
Clive Black, a retail analyst at Shore Capital, says the problems facing Amazon are common to the whole e-commerce sector, as shoppers become more cautious and selective.
Growing pressure has led online clothing retailers Boohoo and Asos to issue recent sales and profit warnings, while furniture seller Made.com collapsed into administration this month despite strong growth during the pandemic. “The tide has gone out and Amazon is going to have to respond to that,” said Black.
“Shoppers have started saving money, they are going to be more savvy, more selective. Retailers will have to be disciplined and they are going to have to get out of anything that is only ‘nice to do’.
“This year is simply not going to be as big as it has been in the past.” As with rivals, the roots of some of Amazon’s current problems lie in the pandemic. A boom in online shopping prompted the internet giant to go on a hiring spree that, with hindsight, now looks like overexpansion. With millions stuck indoors, many people spent more than ever on the internet.
In 2019, Amazon’s annual sales came to $281b. By 2021, that figure had rocketed 67pc higher to $470b.
To meet the extraordinary surge, the company scrambled to invest in its logistics network and added an astonishing 800,000 workers, mainly in its warehouses. Amazon’s total spending on “fulfilment” — the delivery of goods bought online — rose from $43b to $75b during the pandemic.
However, after virus restrictions were lifted, online sales sagged as people spent money on “experiences” such as eating out, going on holiday or shopping in person on high streets.