Amazon boosting wages and hiring incentives to keep up in competitive labor market

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Amazon is finding it necessary to boost wages and increase its use of incentives to fill some of its open positions, resulting in higher costs in its fulfillment network.

“We certainly see stronger demand for workers,” said Brian Olsavsky, Amazon’s chief financial officer, on a conference call with reporters. “So far, we’ve had good success in hiring them with our wage and benefit package that’s pretty competitive. So we’re watching it carefully. But it’s probably one of the bigger elements of inflation in our business right now.”

Later, on a conference call with analysts and investors, Olsavsky cited the issue when answering question about fulfillment costs.

“We’re spending a lot of money on signing and incentives, and while we have very good staffing levels, it’s not without a cost,” he said.

“It’s a very competitive labor market out there,” he added, saying that “wage pressure” is “certainly the biggest contributor to inflationary pressures” across Amazon’s business.

Amazon added 64,000 employees in the June quarter, reaching a new high of 1.335 million worldwide full- and part-time employees, according to its earnings report on Thursday afternoon.

The company, which offers a $15/hour minimum wage nationally, has rapidly expanded its fulfillment and delivery network, doubling its size in the last 18 months, Olsavsky said.

The competitive labor market is one reason Amazon moved up the timeline for its annual wage increases to May rather than waiting until October, he said.

A New York Times investigation published in June described problems with Amazon’s HR systems in keeping up with the company’s growth, as well as a strategy by the company’s leaders to encourage turnover and limit upward mobility among hourly warehouse workers.

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Amazon sales of $113B disappoint Wall Street but profits of $7.8B exceed expectations

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Amazon posted net sales of 113.1 billion for the second quarter, up 27%, but fell short of Wall Street expectations, sending its stock down 5% in after-hours trading.

The result was within the range of the company’s previously issued guidance of net sales between $110 billion and $116 billion. However, Wall Street analysts had expected Amazon to report overall net sales of $115 billion, on average, a 29% increase year-over-year.

Amazon was still able to top expectations with profits of $7.8 billion or $15.12 per share. Analysts expected earnings per share of $12.22, up from $10.30 per share a year ago.

  • Amazon’s online sales growth rate, which has ranged from 37% to 49% amid the pandemic over the past year, rose 13% to $53.1 billion in the latest quarter.
  • The company’s cloud unit, Amazon Web Services, boosted its growth rate to 37%, with net sales of $14.8 billion, and operating income of $4.2 billion.
  • Amazon’s “other” category, which includes advertising revenue, grew to $7.9 billion for the second quarter, up 87%.
  • Total employment reached a new high of 1.335 million worldwide full- and part-time employees as of the end of June, up 64,000 from the end of March.

Amazon’s guidance for the third quarter also appears to be factoring into the after-hours stock slide. The company says it expects net sales between $106 billion and $112 billion, up between 10% and 16%, with operating profits between $2.5 billion and $6 billion, down from $6.2 billion in the third quarter.

Brian Olsavsky, the company’s chief financial officer, addressed the slowdown in online sales on a conference call with reporters.

About mid-May of last year, the growth rate for the business jumped into the 35 to 45% range from what had been about 20 to 21% growth rate pre-pandemic. So we’re starting to lap that year-over-year. And that’s why you see some of the growth rates coming down. Once we lap May 15, we see the business growing in the mid-teens percent. It’s essentially a combination of lapping last year’s COVID strength, and also the additional mobility that we’re seeing among our customers especially in the United States and Europe, people getting out more, doing other things besides shopping.

The company’s news release marked Andy Jassy’s earnings debut as Amazon CEO, quoting him in the spot previously reserved for his predecessor, Amazon founder Jeff Bezos.

Jassy spoke to the vital services provided by the company’s consumer business and Amazon Web Services during the pandemic, and thanked the company’s employees, saying he is “very excited to work with you as we invent and build for the future.”

Related: Amazon’s advertising business is surging amid industry-wide ad sales boom for tech giants

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