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Amazon warns shareholders not to expect profits short-term as it outlines a $4bn response to Covid-19

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Amazon warehouse workers queue in France
Amazon warehouse workers queue in France
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Amazon warns shareholders not to expect profits short-term as it outlines a $4bn response to Covid-19

Amazon chief executive Jeff Bezos today told shareholders not to expect profits at the business while it looked after its staff and its customers during the Covid-19 coronavirus pandemic. He said despite a fast rise in sales during the Covid-19 pandemic, it would spend billions on ensuring that customers continued to be served and that staff were kept safe.

 

Bezos said: “There is a lot of uncertainty in the world right now, and the best investment we can make is in the safety and well-being of our hundreds of thousands of employees. I’m confident that our long-term oriented share owners will understand and embrace our approach, and that in fact they would expect no less.”

 

Bezos, announcing Amazon’s first quarter results, did not mention continued controversy around Amazon’s approach to health and safety during the pandemic in markets including France and the United States – but his words did appear to mark a move to respond to those criticisms.

 

“Providing for customers and protecting employees as this crisis continues for more months is going to take skill, humility, invention and money,” he said. “If you’re a share owner in Amazon, you may want to take a seat because we’re not thinking small. Under normal circumstances in this coming Q2 we’d expect to make some $4bn (£3.1bn) or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4bn and perhaps a bit more on Covid-related expenses getting products to customers and keeping employees safe.”

 

Amazon’s coronavirus expenses, he said, would include investment in personal protective equipment, testing, improved cleaning, the introduction of social distancing that would make processes less efficient, and higher wages – in the UK, wages have risen by £2 for those paid by the hour, and similar rises have taken place in its other markets.

 

The retail giant has moved many of its staff, from research scientists and software engineers to procurement specialists, to a team that is working to build testing capacity so that it can test frontline staff. “We’re not sure how far we will get in the relevant timeframe, but we think it’s worth trying and we stand ready to share anything we learn,” said Bezos.

 

The retailer has also hired 175,000 staff in its fulfilment and delivery network as it responds to customer demand and. In the US its network of Amazon Flex drivers is delivering groceries on behalf of food banks.

 

In the three months to March 31 2020, net sales rose by 26% compared with the same time last year, to $75.5bn (£59.2bn), while net income – or profit – fell by 31% to $2.5bn (£1.96bn) in the first quarter from $3.6bn (£2.8bn) a year earlier. The impact of the pandemic is expected to be felt further in the second quarter of the year, and Amazon predicted that net sales would grow by between 18% and 28% on last year but operating income is expected to be in a range from a profit of $1.5bn (£1.2bn) to a loss of $1.5bn. A year earlier, the retailer made $3.1bn (£2.4bn) in second-quarter profits.

 

Bezos did not address in today’s figures the concerns that have resulted in Amazon closing its French warehouses in response to a French court order that it should shut down all non-essential shipments as a result of alleged unsafe conditions in its warehouses. In the US, it is reported – here by Reuters – that coronavirus has been reported at 19 Amazon US warehouses and that workers who raised concerns have been dismissed. Last month, it’s reported that workers called in sick to Amazon US warehouses in a form of protest.

 

Elsewhere in its statement, Amazon’s first-quarter highlights included the launch of Prime Video Cinema in markets including the UK, the launch of its first grocery store, in Seattle, powered by ‘just walk out’ technology and the availability of that technology to third-party retailers, and the continued expansion and improved capabilities of its Alexa voice assistant range. It has also announced four renewable energy projects in Europe, the US and Australia as part of its commitment to be net zero carbon by 2040. In total it now has 86 renewable energy projects around the world with the capacity to generate more than 2,300 MW and delivery more than 6.3m MWh a year.

 

Commenting on the announcement, Frank Kochenash, president, marketplace services at Wunderman Thompson Commerce, said: “Amazon’s Q1 earnings come at a significant time, when the eCommerce platform is at the centre of the global effort to serve its customers during the Covid-19 lockdown. Its revenue figures show just how important Amazon is becoming, while its profits and costs indicate how challenging it is to operate in this Covid-19 affected world. Amazon’s prominence in retail during this period has risen even further and with nearly two-thirds of consumers starting their shopping journey on Amazon, its vast infrastructure network are showing the importance of its service – in fact 75% of consumers said that they wished that all online retailers offered the same services as Amazon.

 

“The timing of the results is a major factor; most sales gains for Amazon came in Q1, but its armoury of new hires and additional delivery costs will filter into its Q2 finances. Nonetheless, its sales will likely increase further still in the coming quarter. With 65% of all consumers expecting to use digital shopping channels in future, Amazon’s position as the go-to marketplace means more consumers will continue to turn to its services. Other online retailers and brands must step up to ensure that they can compete.

 

“There’s no escaping the fact that the retail giant provides a vital service to those who are unable to leave their homes and is helping to improve brand exposure during lockdown; which should be its overarching message in the coming quarter.”

 

Chris Mole, chief executive of Amazon sales agency Molzi, said: “Jeff Bezos has been very clear: Covid will impact short-term profits. Whilst this affects shareholders, brands should remain cautiously optimistic. Having spent decades putting the customer experience and delivery operation first, the platform has become an essential utility for consumers across the world. This will not change any time soon. In fact, it will only increase as consumers continue to buy online whilst in lockdown. Brands should take advantage of the policy changes aimed at supporting third-party sellers. These include the pause on loan repayments and relinquished fees for long-term storage.

 

“Amazon’s core offering, the advertising business, continues to perform well. While Amazon Fresh, Prime, Alexa, and even AWS, might get the headlines, it’s selling the company’s insight into consumer behaviour that drives nearly half of its revenues.

“Amazon is accustomed to balancing the interests of employees, consumers and shareholders. Only time will tell how this plays out, but the company’s proven versatility makes it well-placed to respond to whatever the next quarter brings.”

 

Amazon UK is an Elite retailer in RXUK Top500 research.

 

Image courtesy of Amazon

 

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