Online retail platform provider Amazon reported highly anticipated fourth-quarter financial performance this week and yet again, provided what can only be described as a mind boggling, blowout holiday fulfillment quarter.

While the main headline was likely the financial performance, what caught the attention of many was an announcement that Founder Jeff Bezos will be relinquishing his CEO role in the third quarter of this year.

There remains little doubt that this online retail platform provider is benefitting handsomely from the ongoing pandemic. As Supply Chain Matters has noted in prior commentary related to Amazon’s business performance, the ability to continually pivot with added flexibility and capacity will remain the subject of future case study.

Amazon Air

Financial Highlights

Total Net Sales were reported to be $125.5 billion for the December ending holiday fulfillment quarter, representing a 46.6 year-over-year increase. Excluding a $1.7 billion favorable impact from year-over-year foreign exchange rate changes, the increase was 42 percent.  The latest quarter was the online provider’s first $100 billion quarterly performance. Sales in the fourth quarter was boosted by the later scheduling of Amazon’s annual two-day Prime Day shopping event that normally occurs in July. Sales for the AWS Cloud technology business unit climbed 28 percent to $12.7 billion in the quarter. According to The Wall Street Journal while AWS amounted to over 10 percent of sales, it accounted for more than half of the company’s operating income in the quarter.

Total sales for all of 2020 were $386 billion, reflecting a 37 percent increase after factoring foreign exchange rate changes. Year over year sales growth was reported as 40 percent in North America and 57 percent internationally. Upwards of 60 percent of sales emanated from North America in 2020. Revenue from physical stores which includes that of Whole Foods Market fell 7 percent in the most recent quarter.

Operating Income increased to $6.9 billion in the fourth quarter compared to $3.9 billion in the prior year’s quarter. Full year operating income increased to $22.9 billion compared with $14.5 billion reported for 2019.

Operating cash flow reportedly increased 72 percent to $66.1 billion for the trailing twelve months compared with $38.5 billion for the trailing period ending December 31, 2019. That is an astounding number for an online retail platform provider but is more a reflection of the margin performance of the company’s Amazon Web Services (AWS) Cloud infrastructure business unit.

 

Operational Highlights

Recall that earlier this year, sensing the increased volume of online activity related to the COVID-19 lockdowns of populations, the company pulled forward future capacity resources, in some cases capacity planned for 2022. In March, the online provider succumbed to the fear-based buying wave and communicated to customers that Amazon Prime shipping standards could not be adhered to with the existing volume of online demand and incurred stockouts of certain household staple, cleaning and medical supply product categories. Eventually, hosted sellers in the Fulfilled by Amazon program were restricted in selling volume because of capacity and operational constraints.

By the start of the Prime Day shopping holiday in October, a lot of augmented capacity was in-place. That included the hiring of an additional 500,000 employees across its global workforce during 2020, along with a reported 50 percent increase in customer fulfillment square footage. CFO Brian Olsavsky indicated to analysts that online provider spent upwards of $44 billion on expansion in 2020.

The financial results press release makes note that $2.5 billion was invested in added pay for front-line workers, on top of the minimum starting wage of $15 per hour for front-line workers.

Supplemental financial data attached to the financial results release indicates that in the holiday quarter, worldwide shipping costs amounted to a mind-boggling $21.5 billion, an increase of 67 percent.  For all of 2020, shipping costs amounted to $165.1 billion. There are very few companies that can incur such logistics and transportation costs and grow in profitability.

The company further indicated that the 2020 holiday season was the best-ever for small and medium businesses selling on the Amazon platform, reportedly with global sales growing over 50 percent compared to the prior year, with upwards of $4.8 billion in net sales processed between the Black Friday through Cyber Monday holiday shopping weekend. However, entering this busy period, the online platform provider had placed inventory stocking restrictions on hosted sellers in order to manage overall surge capacity needs. The online retailer stated that since the pandemic began, more than $5 billion in operational costs were incurred on behalf of independent sellers on the platform.

2021 Outlook

The company’s first quarter 2021 guidance calls for another $100 billion sales quarter, providing a range of between $100 billion and $106 billion, a 33 percent growth range from Q4.  That implies no slowdown from the traditional seasonal factors of the holiday period. Operating income is forecasted to be between $3 billion and $6.5 billion and assumes $2 billion of costs related to COVID-19.

As we noted in highlights of Prediction Four of our Ferrari Consulting and Research Group’s 2021 Predictions for Industry and Global Supply Chains, Amazon will likely come under increased scrutiny from various U.S. and global regulators regarding overly aggressive competitive practices focused on hosted sellers or market competitors. In October, a U.S. Congressional Sub Committee concluded a 16-month investigation and accused the online provider of exerting “monopoly power” over sellers on its web site. The European Commission declared the online provider broke EU anti-trust rules by using independent seller’s data for its own benefit. For added color and background, readers can listen to our latest Supply Chain Matters Podcast where recognized Amazon expert Jason Boyce describes relationships with Amazon sellers, and the sheer market power and influence exhibited by the online retailer.

Employees at the customer fulfillment center in Bessemer Alabama have petitioned for an election of labor union organization that is scheduled this month, which the online retailer is actively fighting.

Add to all this the full transition to a new CEO that occurs in the third quarter.

Indeed, Amazon will also warrant much observation, fear as well as envy among the global retail universes.

 

Bob Ferrari

 

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