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Key takeaways
- Amazon plans to lay off around 10,000 employees starting as soon as this week
- The online retail giant represents another in a growing chain of tech firms slashing head counts to constrain costs
- CEO founder Jeff Bezos issued a recession warning the day before the announcement, suggesting headwinds are blowing in
On Monday, the New York Times
NYT
So far, the nature and scope of the downsizing remains “fluid,” as changes are implemented by individual teams. But if the company does push out 10,000 employees, it will represent the biggest cut in the company’s history.
Amazon has yet to issue any corporate communiques or guidance regarding the layoffs. However, it told the Wall Street Journal that it’s endured rough environments before, and it’s prepared to do so again.
Amazon layoffs: 10,000 on the chopping block
In recent weeks, Amazon has laid off contractors working recruiting roles for its advertising and operations divisions, among others. Several prospective employees also saw their interviews or job offers canceled due to “ongoing restructuring.”
And following Monday’s NYT article, Amazon appeared to jump right into the layoffs Tuesday. LinkedIn posts from affected workers showed that the company’s corporate and tech workforce will be dismissed first.
Amazon’s devices division – which includes Alexa, Echo and Fire TV, among others – have long been considered at risk for cuts. While many of Amazon’s devices are popular (Alexa-enabled device sales total in the hundreds of millions), the company has reported that these profits carry low margins. The Times report suggests that Echo products alone bled $5 billion in 2018.
Indications also suggest that Amazon’s retail business, including its online and physical operations, have seen increased strain post-pandemic. To compensate, Amazon has canceled or paused expansion plans.
Cowen & Company analyst John Blackledge calculates that Amazon’s core business has lost billions in 2022. (Core business here means operations excluding advertising and cloud computing.) He noted that Amazon’s sheer growth and financial hemorrhaging is “just not sustainable.”
Last month, Amazon’s financial chief Brian Olsavsky admitted that he’d seen signs of consumer spending weakness. “We’re realistic that there are various factors weighing on people’s wallets,” he said. “We are preparing for what could be a slower growth period.” And although Amazon remained unsure where spending trends would flow next, the company remains “ready for a variety of outcomes.”
Souring pandemic profits leads to belt tightening
Amazon’s layoffs are the culmination of both its pandemic profit growth and expansion potential waning.
During the pandemic, Amazon saw its most profitable quarters ever as work-from-home and the threat of infection ushered customers towards online shopping and cloud computing solutions. The company increased funding for expansion and R&D.
Despite struggling to find enough warehouse workers to meet demand, the retailer still doubled its global workforce from 800,000 to 1.6 million. Amazon also doubled its cash compensation cap for tech workers in early 2022 amid “a particularly competitive labor market.”
But the online giant’s good luck wouldn’t last.
In early 2022, the company saw its slowest growth rate in two decades. Sky-high inflation, soaring interest rates and a reopening world pulled consumer and business dollars in other directions. Online spending, while still robust, began to deflate. Massive overinvestments in expansion, labor and R&D dented profits – not just for Amazon, but tech companies across the board.
It’s likely these factors combined that have spurred Amazon CEO Andy Jassy, who took over from founder Jeff Bezos last year, to aggressively curtail expenses. The previous head of Amazon cloud computing has slowed or shuttered warehouse expansions, Amazon Care, delivery robot Scout and Fabric.com.
However, until now, Amazon managed to avoid mass layoffs. One strategy was to transfer employees from closed projects to new divisions. The company’s headcount also declined around 80,000 between April and September thanks to high attrition.
In fall, Amazon also froze hiring in smaller times while ceasing to fill roles in its core retail business. When that wasn’t enough, it froze corporate hiring company-wide for at least several months yet.
But it appears these steps are no longer sufficient to stem the bleeding. Slashing 10,000 employees isn’t a decision companies make lightly – especially not right before the busy holiday season. (Though Amazon still plans to bring on 150,000 employees to staff its holiday shopping needs.)
Amid Amazon layoffs, Jeff Bezos issues recession warning
Since Jeff Bezos remains Amazon’s executive chairman, he’s largely stepped back from the Amazon limelight. And although he doesn’t primarily speak for his company anymore, his words still carry weight in the business world.
That’s why, when a CNN exclusive interview released on Sunday aired, people listened.
Among other topics, Jeff Bezos issued a new recession warning to consumers and small businesses.
“The probabilities say if we’re not in a recession right now, we’re likely to be in one very soon,” he said. To counteract the impacts of a recession, Bezos recommends that people “take some risk off the table.” This strategy includes waiting to make large purchases and saving more of your income in the meantime.
“Hope for the best, but prepare for the worst,” he added.
These comments build on last month’s warning that consumers should “batten down the hatches” in preparation for a potential recession.
Bezos is far from the only person to warn of difficult times ahead.
Economists, business leaders and major investors have all voiced their own concerns in recent months. The longer that the Federal Reserve hikes rates to fight high inflation, the more likely a recession seems.
And although Bezos no longer runs Amazon’s day-to-day, it appears Jassy is of like mind, if Amazon’s cost-cutting, freeze hiring and new layoffs are any indication.
Amazon isn’t alone in its layoffs
Layoff off 10,000 people from a single company is no small feat. And yet, Amazon’s layoff isn’t even the largest this month.
Last week, Facebook parent Meta announced that it would send 11,000 employees packing, preemptively outstripping Amazon’s announcement.
Elon Musk has shown around half of Twitter’s
TWTR
And major tech players like Salesforce, Shopify, Snap and Stripe have all announced substantial layoffs throughout 2022. The trend has even bled into the financial industry as big banks start reevaluating headcounts amid slowing investment demand.
While the pace and size of layoffs feels alarming, some economists have pushed back on the notion that layoffs equal economic doom.
Goldman Sachs’ chief economist Jan Hatzius explicitly wrote in a client note Tuesday that “Tech layoffs are not a sign of an impending recession.” (You can’t get much clearer than that.)
His confidence stems from the fact that the tech industry actually represents a fairly small fraction of the labor force, and the fact that tech openings remain above pre-pandemic levels even now.
Others hold that the “growth-recession” forecast for 2023 will only mildly swing the labor market if it does occur. And even a relatively harsh forecast by Bank of America
BAC
Don’t let tech layoffs make you nervous
Recession fodder or not, it’s a challenge to avoid worrying about the kind of mass layoffs we’ve seen this month. But it’s also not incredibly surprising that it’s happening, given the massive overgrowth of the last two years.
If anything, the stock market agrees. The tech-heavy Nasdaq Composite remains deeply entrenched in bull market territory, having shed 28% since January. Amazon stock is down almost 42% for the year. Even the S&P 500, which represents the broader stock market, is down over 16% after a steeper plunge this summer.
Unsurprisingly, these massive declines have seen investors of all stripes struggle to find a place to invest for growth – any growth – this year.
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