Online retail platform provider Amazon.com reported second-quarter financial performance this week and in many accounts was described as a blowout quarter.

No doubt, in a quarter that was again challenged by the disruptions of the COVID-19 pandemic, the financial results were astounding. The online retailer continued to benefit by consumers reluctant to visit brick and mortar stores,

However, from an operations and supply chain perspective, there are likely many signs of caution.

Amazon branded delivery vans

 

Financial Highlights

Financial performance headlines included:

  • A 40 percent increase in Total Revenues to $88.9 billion, compared to $63.4 billion in the year-earlier quarter.
  • Net Income increase of over 120 percent to $5.2 billion, compared to $2.6 billion in the year-earlier quarter.
  • Reported 42 percent increase in operating cash flow to $51.2 billion for the trailing twelve months while free-cash flow increased to $31.9 billion.

 

Financial headlines for other operating divisions included:

  • Third-party sales, namely platform hosted retail partners had sales growth of 52 percent.
  • Cloud computing unit Amazon Web Services (AWS) revenues increasing 29 percent to $10.8 billion.
  • Subscription Services which included Amazon Prime revenues reported a 29 percent increase in revenues to $6 billion.
  • The company’s advertising unit had sales growth of 41 percent in the quarter.
  • According to Business Network CNBC, the online retailer’s international businesses that includes Europe, Japan, and India finally turned a profit in the recent quarter.

 

Operational Highlights

To its credit, the online retail platform provider spent more than $4 billion in the quarter on incremental COVID-19 focused initiatives to protect workers and facilities. Additional compensation was provided to employees and delivery partners, most of whom were deemed essential workers during the ongoing virus outbreak. Workers at Amazon were rather vocal during the quarter expressing ongoing concerns for the safety of their work environments. Sadly, in May, the eight Amazon worker had reportedly died from COVID-19. The total number of Amazon workers who have tested positive for the virus remains unknown since the online retailer refuses to disclose such information.

Amazon’s release of financial performance was sure to note that the company provided a one-time bonus totaling $500 million to all front-line employees and partners throughout the month of June. That bonus amounted to $500 for essential full-time employees, including Amazon owned Whole Foods or drivers for delivery service providers. Part-time employees or contract drivers were granted a $250 bonus. Front-line leaders at Amazon and Whole Foods garnered a $1000 bonus, while delivery service partner owners received a $3000 bonus.

Yet, there are likely Amazon workers who would have a view that such a bonus should have occurred far earlier in the quarter, and throughout the quarter. Now with second-quarter financial performance clearly visible, the notions of benefit sharing are likely to echo even more.

On the Amazon Air side, contractors at Worldwide Freight Services which manages the online provider’s air operations have vocally complained that they have gone without many of the added benefits provided to front-line workers.

By the end of the second quarter, the online retailer’s full and part-time workforce had reportedly increased 34 percent. That included the additional 175,000 workers recruited in the first quarter.

As many Amazon customer likely know, overall same day or one-day shipping fulfillment levels deteriorated significantly, in the early part of the second quarter. Amazon CFO Brian Olsavsky indicated to analysts that shipping levels are “probably considerably behind the going rate before any of this happened.”  Olsavsky told Business Network CNBC that the online retail provider was able to secure additional capacity by pulling “capacity we didn’t think we need until 2021” but demand levels continue to skyrocket.

Supply Chain Matters interprets the above statement to actually mean that the online retailer has more work to-do, despite investing billions in added capability.

Amazon also spent a reported $13 billion in transportation services in the most recent quarter, which is a staggering number for any retailer.

Online grocery capacity was increased 160 percent while sales tripled in this category compared to the year-earlier quarter.

 

Outlook

Amazon issued an upbeat forecast for the third quarter, anticipating revenues in the range from $87 to $93 billion. At same time, the provider’s annual Prime Day shopping holiday was rescheduled from mid-July to the fourth quarter and hosted sellers have already been told that inventory storage space dedicated to the upcoming holiday focused customer fulfillment period will be very closely managed.

The online retailer’s Founder and CEO Jeff Bezos was one of three other big tech company CEO’s that were summoned to a U.S. Congressional anti-trust investigative hearing this week in determining whether four of these largest online tech companies have amassed too much market power. His company’s blowout quarter in the backdrop of a pandemic did not help in the defense of amassed market power. From our lens, that increasingly appear to also include market influence in logistics and transportation capabilities.

 

 

Bob Ferrari

© Copyright 2020, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.