Supply Chain Matters provides perspectives and likely motivations on Amazon’s announced effort to hire an additional 250,000 workers to support upcoming 2023 holiday fulfillment needs.
Commentary Background
At this time of the year, just before the holiday fulfillment surge period begins in earnest in a few weeks, Supply Chain Matters tends to monitor the levels of temporary workers that online and brick and mortar retailers are planning to hire in order to gauge what online providers are expecting in terms of surge volumes.
Like others, we were somewhat surprised to note that Amazon indicated this week that the company intends to hire upwards of 250,000 seasonal workers in order to prepare for this year’s holiday season peak volumes. The number considerably exceeds the 150,000 level of employees brought on in the prior two years.
Thus far, other bellwether seasonal employers such as FedEx, UPS or Walmart have not as yet communicated holiday hiring plans. Indications remain that this season’s peak season will not be a peak at all.
As a means of comparison, the National Retail Federation reported in January that last year’s retail sales during the November to December holiday period grew 5.3 percent to $963.3 billion. That compared to the initial forecast for holiday sales calling for an expected growth rate of between 6 and 8 percent. Overall retail sales in 2022 grew 9.5 percent last year vs. an initial forecast of between 10 percent to 12 percent growth. The 5.3 percent growth in 2022 compared to a 4.9 percent average growth rate over the prior 10 years. The dollar growth number for holiday sales was not adjusted for inflation, thus from a volume perspective, there was more than likely little of a volume surge, which was reflected by logistics industry media.
While NRF has not as yet weighed in on this year’s holiday forecast, Deloitte is predicting an upcoming holiday sales growth that is expected to be between 3.5 percent and 4.6 percent.
Amazon Announcement
According to the online retail platform provider’s announcement, added positions will be full-time, part-time, and seasonal within mostly fulfillment center and transportation roles in hundreds of cities and towns across the U.S.. Noted is that the company is again offering sign-on bonuses between $1,000 and $3,000 in select locations, with employees earning between $17 and $28 per hour depending on position and location.
The announcement points out that “Amazon has opened over 50 new fulfillment centers, delivery stations, and same-day delivery sites across the U.S. this year, resulting in hundreds or thousands of new job opportunities per site, depending on its size and location.”
Why This Level of Seasonal Employees
We obviously can only speculate on what factors contributed to this higher level of seasonal needs. However, we can share what we sense are some likely motivations.
Let’s first look back to April 2022 when the company reported its first quarterly loss in over seven years while delivering sober messages related to increased costs and declining order volumes associated with online retail. The company acknowledged that it overbuilt customer fulfillment capacity and aimed to sublet upwards of 10 million square feet or more of warehouse space.
In October of 2022, Amazon reported Q3 financial performance which provided quite a shock to investors along with views as to what was continuing to unfold in market and supply chain perspectives. The company communicated a number of concerning added warning signs that prompted an immediate reaction to the company’s stock value. Equity analysts and Wall Street influencers used adjectives such as “atrocious,” “dreadful,” and “disappointing,” in summing up the quarterly results. The results were a further acknowledgement that the online provider went too aggressively on its expansion plans during the last two prior years.
What really caught this Editor’s attention at the time was direct statements from CFO Brian Olsavsky, who indicated that the online provider was sensing that consumer behavior is being influenced by high inflation and restricted household spending. Looking forward, some direct statements included: “We are preparing for what could be a slower growth period like most companies. We want to be very careful on our hiring.” He further stated: “We certainly are looking at our cost structure and looking for areas where we can save money.”
As readers are now likely aware, what followed was announcements of staff level layoffs this year amounting to 27,000 employees across various Amazon business units. Operational and order fulfillment headcount, however, was not part of the cutbacks other than expected worker attrition levels.
On the fulfillment network side, as part of the prescribed high level reviews of all businesses, an analysis was made of the company’s operational and freight cost factors. The result has been a rework of its fulfillment network with an emphasis of placing high demand items in customer fulfillment facilities closest to customer centers, in essence enabling a stronger and more responsive two-day or one day customer fulfillment commitment. There have further been increased deployments of mobile robots supporting key customer fulfillment centers.
The company has communicated that this new fulfillment network structure is not only providing meaningful cost savings but has dramatically improved customer last mile delivery times. Likely, many of the additional 50 fulfillment centers are part of this strategy of localized fulfillment, hence added headcount needs.
Closely Related Aspect
We sense that a closely related aspect was the recent announcement of a new logistics fulfillment partnership with online retail platform provider Shopify.
Announced was the Supply Chain by Amazon services offering described as an end-to-end, fully automated set of supply chain services that provide online sellers with a complete solution to move products directly from designated manufacturers to customers around the world. This program is being billed as Amazon upping the ante in being a last-mile fulfillment services option to the likes of FedEx or UPS.
Capabilities are described as storing inventory at bulk, the management of inventory replenishment across both Amazon and other sales channels, while delivering parcels directly to customers. In the area of cost savings, Amazon points to discounts up to 25 percent on all cross-border transportation destined for a warehouse. Later this year, sellers have the ability to take advantage of utilizing a Partnered Carrier Program (PCP) to streamline domestic transportation into Amazon warehousing centers. Sellers can reportedly count on reliable and fast transit times with trusted carriers, at up to 25 percent lower costs compared to alternatives.
Last week, a published report from the Seattle Times was headlined: Amazon going big to fill the delivery void left by Shopify’s retreat. (Paid subscription or metered view)
The report indicates that Shopify, which primarily caters to small and medium business online retail needs, allows Shopify merchants the option to leverage Amazon Prime’s logistics and fulfillment network. The report also cites Insider Intelligence data indicating that direct-consumer sales where shoppers buy items directly from a brand’s web site are expected to increase 17 percent this year. The report cites customer observations indicating that online consumers have come to trust Amazon’s fulfillment and logistics capabilities and that for merchants who elect to sell products via multiple online channels, the program can have added attraction.
As for the emphasis on competitive wages and benefits for new operational employees, the recent ratified labor agreement involving UPS’s unionized employees increases the floor of wage rates in logistics and last mile fulfillment. Under the new contract, part-time workers will receive no less than $21 per hour immediately. And, as we have noted, the Teamsters labor union is now actively targeting certain Amazon facilities for organizing campaigns.
With unemployment levels remaining low in the U.S., fewer workers will likely not be seeking part-time positions. The ongoing shortage of skilled warehouse and delivery workers coupled with a low unemployment rate, attracting any new workers requires competitive wage levels and benefits. Once logistics and fulfillment employers FedEx, UPS and Walmart announced their supplemental worker needs, the overall recruitment challenge will become more obvious.
Takeaway Thoughts
Amazon has consistently practiced a culture of bold moves and thus, our belief is that this supplemental headcount move is likely part of an initiative to take market and fulfillment volume share from existing logistics providers. In a contracting market segment, growth can come from seizing added market volume share. Increased volumes add more cost efficiencies for Amazon’s existing logistics and transportation assets.
Further, one day or even same day last-mile delivery capabilities can facilitate the ability of smaller merchants to provide more responsive or timely holiday fulfillment for their customers, especially if they are Amazon Prime members. Amazon touted that capability in its summary of 2022 fulfillment activities.
Overall, time will tell the actual strategies and motivations of this move.
Watch this area in the coming weeks and follow along since this may become a rather added disruptive move in online retail especially for existing parcel and last-mile providers.
Bob Ferrari
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