Amazon Focuses On Fulfillment After Another Record-Setting Quarter
Amazon earnings announcements in 2020 have become an exercise in financial superlatives. It was almost a given that the company would post another such exercise for the third quarter as the pandemic has driven consumers online, 44 percent of which it lays claim to. It did not disappoint. But the financials took a back seat to a more pressing issue for Amazon and every other eCommerce venture this year, and that’s fourth-quarter delivery issues.
Without going too far into the financial details, suffice to say that the $96 billion top line and $6.3 billion bottom line announced Thursday drew their own version of quarterly superlatives. But according to the company’s executives, it was the company’s fulfillment network — in addition to the COVID-driven digital shift — that made Q3 happen. According to Chief Financial Officer Brian Olsavsky, Amazon was able to meet heightened demand in Q3 due to more network capacity, particularly in its transportation network. Also: It hired more employees to staff said fulfillment network, bringing on 250,000 permanent full-time and part-time employees just in Q3 and 100,000 more in the first month of q4.
“This has been a big year for capital investments we’ve invested nearly $30 billion in capex and finance leases to the first nine months of 2020, including over $12 billion in Q3,” Olsavsky told the Q3 earnings call. “We expect to grow our fulfillment and logistics network square footage by approximately 50 percent this year, which includes beginning additions to our fulfillment centers, as well as our transportation facilities. But half of the square footage growth will be on the transportation side and the rest toward opening more storage centers and delivery stations.”
The implied message: Amazon has spent all year preparing for Q4 and it’s ready. This comes despite reports from Amazon third-party sellers that warehouse space has been restricted during the year and will continue to be restricted into Q4.
“We do feel good that we’ve invested quite a bit in our own capacity,” Olsavsky said. “A lot of the people that we’re hiring are also focused on transportation, so we feel good that we’ve been able to develop that capability a lot this year because we needed it. And we’re going to do it in Q4. Having said that, it’s going to be tight for everyone. We’ll all be stretched and it’s advantageous to the customer and private companies for people to order early this year. But regardless of the order pattern, we’re gonna do our best to get the usual excellent service to our customers on pre-COVID levels.”
Olsavsky also addressed the recent Prime Day, stressing that third-party sellers logged 60 percent more sales this year, but he stopped short of saying it was the company’s most successful shopping holiday. He did say that Amazon continues to see strong Prime member engagement and that members continue to shop with greater frequency across all categories, which was true before the pandemic. Internationally, the number of Prime members who streamed Prime Video grew by more than 80 percent year over year in the third quarter, a cohort that more than doubled the hours of content they watched compared to last year. The company is also reaching more customers with its grocery offerings in Q3, but he didn’t put a number on it. He did say that grocery curbside pickup is now available from all Whole Foods locations.
“You know when, when things open up (post-COVID) a bit more, and there’s more store options for people to buy from, I suppose there will be a leveling of volume back to the stores,” he said. “So we think the trends are good. The year has been pulled forward, probably because adoption curves have been pulled forward, especially on things like grocery delivery.”
By the numbers, in addition to the aforementioned top and bottom-line numbers, North American sales were up 39 percent to $59.4 billion, while international sales grew 37 percent to $25.2 billion.
“This is Amazon’s second full quarter during the coronavirus pandemic,” commented Venture Beat. “Given the company’s leadership position in online retail and the cloud, its results are a bellwether. In Q2, Amazon set aside “$4.0 billion in costs related to COVID-19,” followed up by $2.0 billion in Q3. For Q4, Amazon set aside another “$4.0 billion of costs related to COVID-19.” The company does not want to be seen as benefiting too much from the pandemic — its $5.2 billion in quarterly profit in Q2 was the largest ever in its 26-year history. It broke that record again in Q3 with $6.3 billion in quarterly profit, up 200 percent year-over-year.”