Supply chain nightmare does what regulators and rivals couldn’t: curb Amazon

(CNN Business) – Amazon’s rise has been relentless for more than a decade, and both regulators and rivals failed to stop it. But now Amazon has been hit by a pair of immovable forces: a tangled supply chain and a shortage of workers.

The company’s earnings and sales for the third quarter were well below Wall Street projections. A rare flaw for Amazon that sent its shares down about 3% in midday trading on Friday. On Thursday, Apple also said chip shortages and manufacturing disruptions caused it to lose $ 6 billion in sales in the latest quarter.

Buyers are not holding back Amazon. The US economy remains strong and demand for online shopping is growing, albeit at a slower pace than last year when stores closed and everyone stayed home.

The problem: Amazon simply can’t get all orders to customers quickly enough.

“This shows that it’s not regulators or competition holding Amazon back, it’s the supply chain nightmare,” said Daniel Ives, technology analyst at Wedbush Securities.

Amazon said supply chain bottlenecks and inflation in raw materials, labor and transportation costs depressed earnings during its latest quarter. Those ongoing problems will cost the company an additional $ 4 billion this quarter, reducing profits during the upcoming holiday shopping period, the company added.

“We deal with workplace hazards and supply chain disruptions like many other companies,” Amazon CFO Brian Olsavsky said in a call with analysts on Thursday. “Certainly the cost of compliance in the last few months and what we forecast for the next quarter is not what makes us happy.”

Olsavsky said staffing shortages at some warehouses in the last quarter forced him to redirect products to other facilities that were fully staffed but less convenient. This resulted in a “less optimal location, leading to longer and more expensive transportation routes.”

Amazon’s financial results and investor response are new signs of the crisis’ far-reaching impact on the supply chain and hiring struggles.

Small stores – without the ability to keep prices low in the face of high costs or without the logistics networks to overcome supply shortages and delays – are hit the hardest, analysts say.

But these problems also affect corporate giants.

On average, between 15% and 23% of products are out of stock on Amazon’s online marketplace, a historic record, according to Guru Hariharan, who worked in Amazon’s retail business for five years and runs CommerceIQ, a company from e-commerce analytics advising leading brands like Kellogg, Colgate, and Duracell selling on Amazon. CommerceIQ tracks its customers’ product out-of-stock rates on Amazon, which it then aggregates as a representative sample of a product category on the site.

Amazon declined to comment on the data.

The company increased promotions in October to encourage customers to shop before the holidays. By eliminating or decreasing demand, Amazon could avoid a backlog of orders later in the holidays that could affect its delivery operations.

“That works better for us than having it all in a couple of weeks concentrated around Cyber ​​Monday and Black Friday,” Amazon’s Olsavsky said Thursday. “From an operational point of view, it is easier to do when the volume is extended.”

“I love it in October, but we will take it in November and December as well,” he added.

The company also uses more containers and will bring cargo to new US ports to avoid clogged West Coast entrances.

On the labor side, Amazon will increase salaries and bonuses to alleviate “inconsistent staffing levels at our operations,” he said.

Amazon will hire 150,000 vacation workers to meet demand. Their starting median hourly wage is over $ 18, with an additional $ 3 per hour for certain shifts in some locations and a signing bonus of up to $ 3,000.

Despite the poor quarter and challenges facing Amazon, many analysts say the company still gains market share from its competitors and remains in a stronger position than its rivals to deal with disruptions in the supply chain and hand. working. The company has also invested heavily in recent years to build new warehouses and add manpower in an effort to speed up delivery times. Analysts expect these investments to benefit Amazon in the long term.

“We remain positive in [Amazon] long-term and we believe that supply chain problems and high shipping costs are temporary, not structural, “said James Lee, an analyst at Mizuho Securities, in a note sent to clients on Friday.

Clare Duffy of CNN Business contributed to this article.