Amazon Grew Relentlessly—Now It’s Getting Lean

From a Washington Post story by Caroline O’Donovan headlined “Amazon grew relentlessly. Now it’s getting lean.”:

SAN FRANCISCO — Once, the busy office workers and passing tourists here could swipe their Amazon app, grab a granola bar, a premade sandwich or a soda, and walk away without ever interacting with a cashier.

But now the e-commerce giant is shuttering all of its automated Amazon Go convenience stores in San Francisco, which represented an expensive gamble on a futuristic system of sensors known as Just Walk Out technology.

Amazon Go was launched in 2018, at a time when the “everything store” was in rapid expansion and experimental mode, building its delivery network to get packages to people in two days or less, reshaping the internet with its cloud services business and reinventing grocery in part through its acquisition of Whole Foods.

But now the company is closing offices, cutting business lines and laying off 27,000 corporate workers, including those in core areas like cloud computing and advertising: all signs the era of uninhibited growth at the company famous for doing it all is at an end.

“We have chosen to be more streamlined in our costs and headcount,” said Amazon chief executive Andy Jassy in a March 20 update. “The overriding tenet of our annual planning this year was to be leaner.”

In the three decades since it was founded, Amazon has grown from an online bookseller to a behemoth that not only sells everything, but also delivers it, and sometimes produces it. It has roughly 1.3 million employees, brought in over half a trillion dollars in annual revenue in 2022, and has bought or built businesses in grocery, transportation, finance and health care.

Cracks started to appear last summer, however, when Amazon announced that it had over hired and overextended its logistics operation during the coronavirus pandemic and would be reducing head count and slowing growth.

In recent weeks, tens of thousands of tech workers have lost their jobs as major firms like Google, Microsoft and Facebook respond to an increasingly sluggish economy. But the latest round of cuts makes Amazon the leader on slashing headcount in the tech sector.

Six current and former executives and employees who spoke on the condition of anonymity said the tech giant’s scramble to find focus is taking a toll on morale.

Amazon spokesman Brad Glasser said Amazon has “always been focused on innovating on behalf of customers and making bold bets that will create meaningful change in the long term.” He said the company sees opportunities for growth in Amazon Web Services and advertising as well as Prime Video, health care, satellite internet and autonomous vehicles, among others.

Amazon still operates more than twenty Amazon Go stores in other cities, and is continuing to sell the cashierless technology for use in airports, arenas and campuses.

While Amazon’s appetite for new business has always been enormous, its cost saving mind-set set it apart from other tech companies — frugality has long been a core company principle. Where employers like Google and Facebook became known for cushy workplaces and generous salaries, Amazon is an infamously competitive and sometimes bruising workplace where employees were rewarded for thriftiness.

Sometimes, that corner cutting culture went too far, as in the expansion of its warehousing and logistics network, where speed has often taken precedence over safety, according to investigations by Reveal, ProPublica and BuzzFeed News.

Amazon said it disputes the results of those investigations and that its safety record is improving.

Now, Amazon is leaning into being even leaner. As jobs are cut and productivity comes under even greater scrutiny, workers are losing some of the leverage they gained from a tight labor market.

Thousands signed a petition protesting Amazon’s post-pandemic return to office mandate, but HR head Beth Galetti shot the petition down Friday, telling employees the rule would stand, Insider reported.

Matt Litrell, a warehouse worker and union organizer in Kentucky who was fired last summer said Amazon’s belt-tightening makes concerns about terminations, layoffs and building closures “even more credible.” Already, he said, workers at his old warehouse have seen the number of shifts available drop.

Amazon said Litrell was fired for performance reasons, but Litrell said he was terminated in retaliation for his union activities.

Amazon founder Jeff Bezos, who owns The Washington Post, famously had the idea that the company didn’t need to be profitable and could instead become enormously valuable by burning cash to grow quickly. But that was thirty years ago, and now Amazon is a mature company under different leadership — and shareholders expect real profits. After soaring to a nearly $2 trillion market valuation during the pandemic, Amazon plummeted to below $900 billion in November.

On a recent earnings call, Jassy said he sees significant potential for Amazon’s growth and is “encouraged by the continued progress we’re making in reducing our cost.”

“When you also factor in our investments and innovation in several other broad customer experiences (e.g. streaming entertainment, customer-first healthcare, broadband satellite connectivity for more communities globally), there’s additional reason to feel optimistic about what the future holds,” he said.

Amazon isn’t shrinking, and remains the second largest private employer in the United States. But as consumer spending has dipped — particularly following the explosion of online shopping during the pandemic — customers have also returned to physical stores, and multiple observers have noted that the experience of shopping on Amazon’s website has steadily gotten worse.

Rather than curate or recommend products to make the experience better for the customer, Amazon has turned most of its site over to advertising, said Juozas Kaziukenas from e-commerce research site Marketplace Pulse. That’s been incredibly lucrative for Amazon — its advertising business is now growing faster than Amazon Web Services — but isn’t particularly appealing for customers.

“It has so little meaningful competition it doesn’t feel forced to innovate,” Kaziukenas said.

Wendy Tien of Minnesota said in an interview she has decreased her spending on Amazon since the pandemic ended.

“It is frustrating to have to sift through multiple pages and listings of completely irrelevant results,” Tien said. Shopping in person or on other websites can also be cheaper. “If I can get what I need locally I’ll do that instead.”

Glasser, the Amazon spokesman, said the company has continued to invent new shopping features and is “proud of the investments we’ve made that allow us to deliver a seamless, curated and fun shopping experience for all our customers.”

Though Amazon is most well-known for its e-commerce business, its clouding computing arm, Amazon Web Services, has long been its most profitable division — a shift architected by Jassy, which helped him land the job as chief executive. But AWS growth has dropped off precipitously as customers like banks, start-ups and health care companies shrink their technology spending. Amazon acknowledged the downturn in a recent earnings call, saying its customers were responding to “economic downturn.”

“There’s still buying, they’re still growing, but less than before,” said former AWS analyst Chris Gaun. “This is the lowest it’s ever been — by far.”

As a result, Amazon is looking to rein in spending. In the last year, Amazon has cut jobs in its Alexa smart speaker division, killed projects in its secretive incubator Grand Challenge, pulled back on self-driving robots and delivery drones, and closed its brick and mortar shops. But it’s also pressing for profitability in its core business areas.

Elaine Kwon, a co-founder and managing partner at Kwontified who consults with brands that sell to Amazon wholesale, said Amazon has drastically reduced the size of its orders while simultaneously increasing the percentage of sales it takes as a fee.

Amazon is “trying to squeeze as much margin out of every source” that it can, said Kwon.

“There’s been a lot of difficult conversations, very tense discussions,” she continued. “But Amazon is still the 800 pound gorilla when it comes to e-commerce distribution. What are you going to do, say you’re not selling on Amazon anymore?”

Amazon said it’s engaged in “open and consistent conversations” with brands and is committed to finding mutually beneficial solutions to economic challenges.

Amazon is also re-examining its acquisitions. That includes Twitch, the video streaming platform Amazon acquired for nearly a billion dollars in 2014. On March 16, Twitch’s founder announced he was leaving Amazon. Four days later, Amazon said it would lay off hundreds of Twitch employees.

TJ Parker, whose pharmacy start-up Pillpack was bought by Amazon in 2018 for $750 million, said on Twitter that the news marks the end of “the era of amazon being able to retain start-up founders.” Parker left Amazon in August after four years at the company; the rest of Pillpack’s founding executives followed not long after.

Amazon Pharmacy, which grew out of Amazon’s acquisition of Pillpack, has struggled to gain traction, a former employee who spoke on the condition of anonymity said. Amazon has tried to increase interest by offering discounted subscriptions like RxPass.

But the pharmacy team still hasn’t launched some of the features that made Pillpack popular, like prescriptions conveniently shipped in daily packets. The logistics of running a medical business have been tricky — for example, Amazon can’t ship drugs through its existing logistics network, a second former employee said. And integrating Pillpack’s technology into Amazon’s complex and clunky back end software was a long and arduous process, three former employees said. Overall, former employees said the company underestimated how complex running a health care business would be.

Amazon said it’s “excited about the momentum for Amazon Pharmacy and our other health services.” Pillpack continues to operate independently and offer the same features.

Amazon is also pulling back on development. As it built the logistics empire that gets packages to doorsteps in two days or less, Amazon frequently opened new delivery stations or fulfillment centers every few weeks. Now, dozens of those warehouse development projects have been canceled, closed or delayed.

The company is delaying some plans for expansion, including the construction of its second headquarters in Arlington, Va. It also pushed off plans for new corporate offices in Nashville, and even pulled out of an office tower it occupied for over a decade in its longtime first headquarters, Seattle.

Amazon said its long-term plans in Virginia are unchanged and that construction in Nashville is in process.

Glasser said that while Amazon has “closed some older facilities and delayed the opening of others, we’re also regularly launching new ones across the country.”

Amazon has also been closing its U.S.-based call centers and shifting those jobs to remote positions, according to Bloomberg. This week, it told employees it would close another support center in Ireland.

The company has also been delaying the opening of Amazon Fresh grocery stores around the United States.

Amazon had hoped its cashierless technology would be a major draw for grocery store customers, but so far it’s had limited success, according to a former Amazon employee who spoke on the condition of anonymity because they still work in the tech industry. Opening a grocery store requires significant upfront investment in terms of real estate and labor, which has made it tricky for Amazon to experiment with its grocery model as much as the company would like, the person said.

During a February earnings call Jassy, the chief executive, said grocery remains a growing part of Amazon’s business that he sees as a big opportunity as more people switch to ordering groceries online.

“We’re working hard at it. We see some encouraging signs. And when we do find that equation, we will expand it more expansively.” he said.

Caroline O’Donovan covers Amazon for the tech team. Before joining The Washington Post, she covered tech and labor for BuzzFeed News.


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