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Home » Amazon’s Quandary: Cutting Workers Without Fueling Labor Unrest

Amazon’s Quandary: Cutting Workers Without Fueling Labor Unrest

Amazon Labor Union Rally
An Amazon truck drives past an Amazon Labor Union (ALU) rally in the Staten Island borough of New York. Photo: Bloomberg.
May 1, 2022
Bloomberg

Amazon.com Inc., having added hundreds of thousands of workers during the pandemic, now faces a quandary: how to trim its workforce to match slowing e-commerce sales growth without fueling labor unrest and giving unions more ammunition. 

When the world’s largest online retailer reported earnings on Thursday, it acknowledged that the extra logistical capacity added to handle a surge in demand from homebound consumers has left it with too many workers and a surfeit of warehouse space. With shoppers returning to their pre-outbreak spending habits, the company lost money in the last quarter, posted the slowest sales growth since 2001 and warned that revenue and profits would suffer in the current period. 

Amazon responded to the pandemic by doubling the size of its logistics network over a two-year period, a rapid buildout that exceeded that of rivals and partners like Walmart Inc., United Parcel Service Inc. and FedEx Corp. For a time, the Seattle company was opening a new warehouse somewhere in the U.S. roughly every 24 hours. 

Read more: Amazon Plans to Invest $1 Billion in Logistics and Robotics Companies

Many investors hoped Amazon would be able to dial up profits once pandemic-related strains eased because the company had plenty of new space and could slow spending on new facilities. Instead Amazon overbuilt and is now stuck with costs that are outstripping demand. The shares tumbled more than 10% on Friday, the worst intraday fall in more than a decade, and many analysts rushed to lower their price targets.

The company is unlikely to close facilities because it remains committed to one-day and same-day shipping, a key goal now that many of its competitors are able to get products to customers in one or two days. However, Chief Financial Officer Brian Olsavsky said last week that Amazon was slowing the pace of new construction, pushing back the opening of planned warehouses. 

The labor challenge is more fraught. Earlier this month, an upstart labor union started by a fired Amazon worker won a historic victory at a company warehouse in Staten Island, New York. On Monday, federal labor officials are expected to start counting votes for an election at an Amazon facility across the street from the first. Even if the union loses the second vote, labor organizers are expected to attempt to organize other company warehouses across the U.S. 

Amazon, America’s second-largest private employer, hired roughly 780,000 people over the past two years, bringing its workforce to 1.62 million. It also raised wages, paid out bonuses for new hires and was willing to send out half-empty vans to ensure customers got their packages on time. Now it needs to find a way to reduce headcount and rein in labor costs. 

Attrition will almost certainly take care of part of the problem. Turnover at Amazon warehouses is famously high, with many employees staying less than a year owing to the physical strain of standing at a workstation for a 10-hour shift. But the company also signaled that Amazon was entering a period of belt-tightening. “Our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network,” Chief Executive Officer Andy Jassy said in a statement on Thursday. 

In practice that could mean leaner staffing in warehouses and more pressure on the people retrieving and boxing items to speed their work and make fewer errors.  

“They have significant labor pressure, both blue and white collar,” said Tom Forte, an analyst with D.A. Davidson & Co. 

Amazon has tried to soften its reputation as a grueling workplace in recent years, touting an average starting wage above $18 an hour, as well as new safety initiatives to help curb an injury rate that exceeds industry averages. Those programs could take a hit in a dawning age of austerity, potentially angering workers who already have a long list of unions eager to help them extract better working conditions. 

Increasing labor unrest, assuming it happens, could prove politically perilous for Amazon. President Joe Biden has already expressed support for making it easier for workers to unionize, while Senator Bernie Sanders, the Vermont independent, has proposed ending government contracts with companies that violate labor laws. While the proposal is unlikely to bear fruit soon — if ever — Sanders has scheduled a hearing this week on the matter.

How much overcapacity Amazon needs to work through is hard to gauge, and some analysts believe the massive warehouse expansion will come in handy during peak shopping periods, including the Prime Day sale in July and the Christmas holiday season. 

“Growing into existing fulfillment capacity may be one of the easiest problems for Amazon to solve in its history,” BofA Securities analysts wrote in a note to clients on Friday.

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