Amazon analysis: Can the winner take it all?
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Amazon is thriving under lockdown but its image is battered by staff problems. As labour costs rise, automation looks more attractive than ever. Is it the model for the post-pandemic enterprise of the future? And will that make it the model employer?
It came as a shock to Emily Cunningham and her colleague Maren Costa when they were fired on Good Friday.
The two former Amazon user-experience designers had warned of the health risks for warehouse workers during the Covid-19 crisis and, in a petition to the CEO in late March, had demanded improved safety protocols, enhanced benefits and facility shut-downs during the pandemic.
Their efforts were celebrated on social media but Costa wrote that they’d just been “fighting for our colleagues’ safety in the time of Covid”.
The case is atypical because protest usually comes from lower-paid warehouse workers. Cunningham and Costa inspired Timothy Bray, senior principal engineer at Amazon Web Services (AWS), to “quit in dismay at Amazon firing whistle-blowers who were making noise about warehouse employees frightened of Covid-19”. The company now has more than four known Covid-19 cases at each of its US warehouses.
Amazon’s displeasure with Cunningham and Costa has a back story. They were both leaders of the Amazon Employees For Climate Justice campaign, and Cunningham spoke out at last year’s annual shareholders meeting in Seattle, criticising the company’s invitation to fossil fuel companies to use its technology to find more oil faster.
The company tolerated such criticism; Cunningham and Costa were loyal Amazonians who had worked at the firm for a combined two decades. Then Covid-19 struck and, cynics say, it was the right moment for the company to get rid of them, when, as an Amazon spokesperson put it, employees could be seen as “heroes fighting for their communities and helping people to get the critical items they need in this crisis”.
Amazon takes note of all efforts to combat the coronavirus crisis in an internal daily blog titled: ‘How we’re supporting our employees, customers, and communities.’ Amazon’s stock price may have responded positively to specific blog entries – after Amazon began disciplining warehouse workers who violated social-distancing rules, the closing price rose by nearly 5 per cent, while news that it had hired 100,000 new workers and had plans for a further 75,000 caused another jumped in mid-April.
Market analyst Scott Mushkin, managing partner at R5 Capital, doubts that shareholders bother with Amazon’s PR narrative. He thinks what boosted prices is investors starting to see Amazon’s delivery-to-home model as a market winner. Others bet on the additional investments to its cloud service becoming more attractive as more moves are made to the cloud under continued lockdown.
Amazon has tightened its rules on what its staff can and can’t say outside of the company. According to E&T’s sources, the firm’s notoriously tight non-disclosure agreements (NDAs) may now incorporate Covid-19. Internal communication already bans employees from criticising climate-change-related activity and so it’s not inconceivable that gagging orders could be extended to Covid-19. One former AWS employee remembers Amazon’s PR “making you scared as hell to say anything against the company”.
The coronavirus pandemic has united tech and warehouse workers in their criticism of their employer, but they otherwise have little in common. Tech workers’ conditions are improving under lockdown, while warehouse workers’ conditions only get worse and become more dangerous, according to the UK union GMB.
The additional 175,000 workers recruited by Amazon to handle extra demand created by a locked-down population is a temporary measure. Amazon’s enormous workforce costs it a fortune. The extra workers it needs for Covid-19 safeguarding measures, together with higher hourly pay and overtime rates for warehouse workers during this time, add further to the labour costs.
The greatest share of vacancies on Amazon’s website are currently in software development roles, with only 6 per cent in fulfilment and operations management positions.
All of this focuses the company’s long-term mission on creating a streamlined and higher-skilled employee base. “Amazon would love to have fewer employees,” says Mushkin at R5 Capital. More warehouse staff equals more inefficiencies in fulfilment centres; with fewer people it can keep them safer as well as lower expenses.
Hiring the right people becomes trickier under the pressure of a global pandemic. Vetting and training is harder, and new recruits place more pressure on Amazon’s employee onboarding and quality-checking processes.
Hiring and firing of workers is simple for Amazon. In the US, new warehouse openings and areas where Amazon established new fulfilment centres saw an increase in certain counties’ staff turnover statistics. In these locations, average warehouse turnover jumped to more than double between 2011 and 2017 and it is reasonable to assume that turnover rates remain high, if not higher, under Covid-19 conditions.
In the short term, finding new workers is easy thanks to record-high unemployment rates. One senior economic advisor to the US President reckons US unemployment will spike to between 16 and 20 per cent by June.
Elsewhere, European Union leaders doubt that Amazon’s current hiring spree can continue in the long-term. It’s more complicated to get rid of workers in Europe, but it is different for temporary workers so Amazon may try to hire more temps. This makes it easier to lay-off workers, says French union leader Stéphane Enjarlan. When the union protested a few years ago, for example, Enjarlan noticed how Amazon systematically got rid of temporary workers. In mid-April, just after the outbreak of the coronavirus crisis, the company closed French warehouses and put 10,000 workers on furlough.
The pandemic has exposed the differences between well-paid, skilled tech workers and low-paid, essential workers, argues Alessandro Delfanti, assistant professor of culture and new media at the University of Toronto. He anticipated Amazon’s labour protests before the crisis and wonders if it can change the definition of what essential means and who should earn more. If the crisis drags on, warehouse workers essential to keeping Amazon deliveries afloat may obtain better wages and benefits, he predicts.
Longer-term social distancing precautions can drive up use of robots to minimise contact between workers.
Experts think the company will sooner or later want to reduce its overheads. Amazon fulfilment workers are expensive, while AWS costs much less to run and adds more to the profits. The cloud business’s revenue accounted for a fraction of all revenues but brought in more than half of the operating income. In short, labour costs and complaining workers could drive warehouses towards more automation.
Amazon’s tech portfolio seems prepared. It has invested more in ‘business methods’, ‘electric digital data processing’ and ‘machine learning’ technology, all potentially relevant for optimising warehouses, patent analyst Janice Stevenson at IFI-Claims says.
E&T discovered a number of recently awarded robotics patents useful for automation including a mobile robot group for moving an item, systems and methods to facilitate human/robot interaction, and technology for opening packages at high speeds using robots.
The company has already tried delivery robots, winning its first robotics patent for warehouse automation in 2018. Last May, the company announced a roll-out of machines for packaging customer orders, cutting around 1,300 jobs in its US fulfilment centres. “Longer-term social-distancing precautions can drive up use of robots to minimise contact between workers,” says Benjamin Cumming, who started the Future of Work initiative at Chatham House. Amazon already has 200,000 robots in its centres.
Three out of five Amazon office workers suffer from burnout, a previous survey once found. Jason Merkoski, ex-lead engineer behind Amazon’s Kindle e-book reader, says lockdown helps alleviate pressure on office workers’ mental health. “It’s a temporary relief to see people working from home. They might be happier. It’s a nice internal uptick for folks that can work from home instead of working 16 hours a day at headquarters.”
Amazon’s tech and office staff is also uniquely positioned to deal with lockdown, he adds, with remote working via conference calls common well before Covid-19. The narrative to battle Covid-19 can also motivate employees, he thinks. Projects that really matter can lift tech employees’ morale.
E&T found the attitudes of tech and office workers at Amazon improved over the year. Forty-thousand reviews on Glassdoor, a website where current and former employees can anonymously review companies, show Amazon still scores lower than other tech giants including Apple (4.1 stars), Facebook (4.4) or Google (4.4). Yet it’s never been a better time to work in Amazon’s offices, with record-high average ratings of 4 stars.
What does the future hold? There are immediate and unique Covid-19 challenges and Amazon’s delivery model could wreck vendor businesses. It has extremely high expectations on its own profitability and productivity, measured by a vast number of merciless data-driven metrics. The pandemic has put extra pressure on getting certain products out faster, in turn affecting suppliers.
Business transformation expert Sean Culey says Amazon’s current inability to fulfil its Prime next-day-delivery promise could start to bite, putting pressure on vendors. Amazon charges a premium for this service, having invested $800m last year in same-day delivery. “All this investment is wasted if they cannot regain control of their supply chain,” Culey says. Poorly performing vendors will not be tolerated.
In the past, Walmart, for example, ran lots of brands and companies out of business because of a “relentless bottom-line zeal towards getting inventory in faster and shipping them faster while reducing price”, ex-Amazon employee Merkoski adds. Covid-19 could exacerbate conditions.
Mick Rix, national officer at trade union GMB, confirms added Covid-19 pressure: “They want people to work harder and longer.” Delivery workers have been doing 12-hour shifts; Amazon says this will continue. Now, with extra Covid-19 safety measures, Rix thinks Amazon should suspend Prime delivery.
Amazon is winning now, but further down the line a full-on economic recession will still hurt, analysts say. At present it is being affected more politically than economically. Critics have called on the US justice department to investigate Amazon over “predatory and exclusionary data practices to build and maintain a monopoly”.
President Donald Trump’s administration added five of Amazon’s e-commerce platforms to its blacklist register due to complaints from businesses over the sale of fake goods. Trump’s feud with Amazon founder Jeff Bezos, who also owns the Washington Post, continues.
Elsewhere, Covid-19 will not stop nations such as the UK imposing taxes on digital services. But all this will not hamper business success as swathes of buyers under lockdown will keep on buying. Covid-19 lockdowns will also keep cloud customers dependent. Figures from Amazon’s latest quarterly report affirms Amazon’s prevailing position for earning money remains stable. Sales reached $75.5bn, up 27 per cent, in this coronavirus-stricken quarter. But profit suffered nearly 10 per cent under higher costs and lower efficiency.
Commitments such as serving the Canadian government and committing to distributing personal protective equipment could pay off. Experts think it a prudent strategic move if successful government-Amazon partnerships spread. History supports the notion that e-commerce giants benefit from pandemics. Despite the 2003 SARS outbreak hurting the Chinese e-commerce giant Alibaba initially, it eventually emerged healthier. It convinced millions of new consumers to give online shopping a shot.
Where Amazon’s additional boost from Covid-19 leaves it at the moment is clear: at the top. But it is also clear where that leaves low-skilled and sceptical Amazonians. Amazon transcended from being just another online retailer to becoming the marketplace, Culey says: “Now it’s the first place to go for pretty much everything.”
Amazon has finally become the ‘Everything Store’ that Jeff Bezos envisioned in 1994. In the crisis it is a defender, but there are signs of cracks, too.
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