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04/29/2022

Amazon Reports Inflationary Pressures Added $2B in 'Incremental Costs'

Jamie Grill-Goodman
Senior Editor
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This month, Amazon added its Amazon One palm entry and payment technology to the Whole Foods Market store at Madison Broadway in Seattle, WA.

Amazon reported a bleak quarter in the face of the pandemic and war in Ukraine, which CEO Andy Jassy said brought “unusual growth and challenges.” 

“Today, as we’re no longer chasing physical or staffing capacity, our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network,” he said in a press release. “We know how to do this and have done it before. This may take some time, particularly as we work through ongoing inflationary and supply chain pressures, but we see encouraging progress on a number of customer experience dimensions, including delivery speed performance as we’re now approaching levels not seen since the months immediately preceding the pandemic in early 2020.”

The online giant reported a loss of $3.8 billion for Q1 2022, which ended March 31, or $7.56 per diluted share,compared with net income of $8.1 billion, or $15.79 per diluted share, in Q1 2021. Analysts had expected earnings of $8.35 a share.

On the other hand, the company’s cloud computing division, Amazon Web Services (AWS), has been growing 34% annually over the last two years and 37% year-over-year in the first quarter.

“AWS has been integral in helping companies weather the pandemic and move more of their workloads into the cloud,” Jassy noted.

In its consumer business, Amazon continued to face a variety of cost pressures, CFO Brian Olsavsky said during the retailer’s earnings call.  

“The externally driven costs are a result of intensifying inflationary pressures throughout Q1,” he noted. “Line haul air and ocean shipping rates continue to be at or above the rates in the second half of last year, which were already much higher than pre-COVID levels. Some of this is due to the impact of the Omicron variant in China and labor shortages at point of origin, and the start of the war in the Ukraine has contributed to high fuel prices.”

Olsavsky said the cost to ship in overseas containers more than doubled compared to pre-pandemic rates, while the cost of fuel is around 1.5 times higher than it was a year ago. Amazon also saw some volatility in utility pricing for some of the energy costs in operating the AWS data centers, Dave Fildes, director, Investor Relations at Amazon, noted as well.

“Combined with the year-over-year increases in wage inflation, these inflationary pressures have added approximately $2 billion of incremental costs when compared to last year,” Olsavsky said. “While we will continue to look for ways to mitigate these costs, we expect they will be around for some time.”

    Amazon’s Technology Highlights

    Amazon announced Buy with Prime, a new benefit for Prime members in the U.S. that extends the convenience of shopping with Prime to online stores beyond Amazon.com. Prime members can shop directly from participating merchants’ online stores using their Prime member benefits, including fast and free delivery, a seamless checkout experience, and free returns on eligible orders.

    Amazon continued to invent and expand ways for customers to discover fashion products. For example, View in 3D enables customers in the U.S. and Canada to view a shoe at any angle, and The Drop provides customers worldwide with access to limited-edition, size-inclusive clothing collections by fashion influencers globally. Amazon also launched Style Feed, a shoppable stream of influencer-curated content on the Amazon shopping app for customers in the U.S. and India to explore fashion, home décor, and beauty items.

    Amazon opened eight new Amazon Fresh grocery stores and now has 46 Amazon Fresh grocery stores around the world. The newest Amazon Fresh store in Seattle is the world’s first grocery store seeking Zero Carbon certification from the International Future Living Institute and features more than a dozen store design upgrades expected to save nearly 185 tons of carbon emissions each year when compared to an industry-standard grocery store.

    Amazon opened a new, larger Amazon Go store format for customers in suburban areas in the U.S., with the first location in Mill Creek, Washington. The new format features Amazon’s Just Walk Out technology for a checkout-free shopping experience, an expanded selection of grab-and-go food and beverage items, and a Made-to-Order kitchen with freshly prepared, customizable breakfast and lunch items. Amazon has plans to expand this format to the Los Angeles area in the coming months.

    For the first time, Amazon introduced Just Walk Out technology at two Whole Foods Market stores in Washington, D.C., and Sherman Oaks, California. Just Walk Out technology also rolled out at new third-party locations, including travel retailer WHSmith in LaGuardia Airport in New York City; UBS Arena in New York; and Minute Maid Park in Houston, Texas. In addition, a food and beverage store equipped with Just Walk Out technology and Amazon One will be opening soon at T-Mobile Park in Seattle. The combination of technologies will give fans the option to enter the store with their palm or credit card, take what they want, and leave without stopping to check out.

    Amazon Business launched Punch-in, an industry-first procurement tool that simplifies the buying experience for businesses. With Punch-in, businesses can start their purchasing directly on Amazon Business and submit their cart to their e-Procurement system for purchase order creation and reconciliation.