On This Prime Day, 'Pain Is Considerable' for Amazon

One of company's biggest annual events comes amid excess costs, sluggish online sales growth
By Newser Editors and Wire Services
Posted Jul 12, 2022 5:50 AM CDT
On This Prime Day, 'Pain Is Considerable' for Amazon
An Amazon Prime truck passes by an Amazon fulfillment center on Staten Island, NY, on March 19, 2020.   (AP Photo/Kathy Willens, File)

Amazon is heading into its annual Prime Day on Tuesday much differently than how it entered the pandemic. The company has long used the two-day event—one of its biggest all year—to lure people to its $139 Prime membership. Amazon doesn't disclose total Prime Day sales, though growth estimates for last year's event ranged from 7% to 9%, per the AP. Research firm Insider Intelligence suggests sales could grow even more in 2022, in part due to the event's mid-July timing, which, compared to last year's in June, would allow the company to capture more consumers doing back-to-school shopping. Amazon could use the boost amid a slowdown in overall online sales. Once the darling of the pandemic economy, the company posted a rare quarterly loss in April, as well as its slowest rate of revenue growth in nearly two decades, at 7%. Inflation added roughly $2 billion in costs.

Amazon also conceded it had too many workers and expects its excess capacity from its massive warehouse expansion during the pandemic to total $10 billion in extra costs for the first half of 2022. "It's causing pain at the moment, and that pain is considerable," says Neil Saunders, the managing director of GlobalData Retail. It's quite a reversal from the early days of the pandemic, when the e-commerce giant's profits soared as homebound shoppers turned to online shopping to avoid contracting the coronavirus. Demand was so high that Amazon nearly doubled its workforce in the last two years to more than 1.6 million people. It also increased its warehouse capacity to match the avalanche of orders flooding its site. By the end of 2021, Amazon had leased and owned roughly 387.1 million square feet of space for its warehouses and data centers—more than double what it reported in 2019.

Then, the worst of the pandemic eased. Americans felt more comfortable leaving their homes, and demand also slowed across the board. The retail sector's online sales growth in the US, which spiked to 36.4% in 2020, returned to more normal growth in 2021 and 2022, clocking in at 17.8% and 9.4%, respectively, per Insider Intelligence. Retail sales figures for June, due to be released Friday, will shed more light on how e-commerce is faring. The most recent figures from May showed online sales falling 1%, while overall retail sales declined 0.3% from April amid skyrocketing inflation. "This is a period of time when consumers are being much more frugal thinking about how they're spending and buying,” said David Niekerk, a former Amazon vice president of human resources who oversaw operations. "That's having an impact on Amazon."

(More Prime Day stories.)

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