The giant’s footprint reduction to cut costs sinks Commercial Real Estate.
By Wolf Richter for WOLF STREET.
Amazon, which booked net losses in Q1 and Q2 totaling nearly $6 billion and whose shares are down 38% from their high in July last year, is undertaking large-scale efforts to cut costs – including commercial real estate costs. It is closing or cancelling 44 warehouses across the US; it’s halting construction on six office towers, and won’t start construction on a seventh. And now it emerges that it plans to close four of its five call centers in the US and switch those customer service representatives to working from home.
Amazon currently operates five call centers in the US. Kennewick, WA; Lexington, KY; Phoenix, AZ; Huntington, WV; and Houston, TX. It plans to close four of them. Either the Houston or the Huntington facility will likely remain open, according to Bloomberg, citing a source.
Amazon confirmed to Bloomberg that the call center work will be shifted to work from home. Even before the pandemic, it already allowed some call center workers to work from home.
“We’re offering additional members of our customer service team the increased flexibility that comes with working virtually,” an Amazon spokesman told Bloomberg. “We’re working with employees to make sure their transition is seamless while continuing to prioritize best-in-class support for customers.”
For many call center workers, not having to commute is a big benefit, and this should make recruitment easier and reduce turnover, in an economy where hiring and employee turnover are tough challenges for employers. In addition, Amazon can recruit call center workers around the US – essentially anywhere with a good internet connection – and is no longer tied to particular cities.
By cutting out four of its five call centers, Amazon will save on the costs of running them, including administrative and real estate costs.
Footprint reduction.
In July, it emerged that Amazon was halting construction on five office towers, and will not even start construction on a sixth tower, all of them in downtown Bellevue, Washington. Amazon also halted construction on its office tower in Nashville, Tennessee, where it already has a tower. And it slashed the amount of office space it had planned on leasing at Hudson Yards, in Manhattan, where it has been leasing space since 2019, and this would be for additional space.
The entire office sector of commercial real estate is already in trouble with sky-high vacancy rates and a very uncertain future as demand for office space has plunged amid working from home and the sudden recognition that the future these office towers were built for in huge number may not come.
Prices of office REITS have plunged below their March 2020 lows. Boston Properties [BXP] is down 50% from February 2020, most of which over the past five months. Vornado Realty Trust [VNO] plunged to the lowest in about 20 years and is down 66% from February 2020. Etc.
In terms of warehouses, in May, it emerged that Amazon would shed between 10 million square feet to 30 million square feet of warehouse space that it took on during the pandemic, but that it won’t need anymore. It is leasing these warehouses and will try to sublease them to some other companies.
This instantly pulled the rug out from under what was then the still red-hot industrial segment of commercial real estate. Amazon is the giant in the industrial space.
In late June, it emerged that Amazon has delayed or cancelled plans for 13 warehouses around the country. It more recently emerged that Amazon in fact has closed or cancelled 44 warehouse facilities and delayed the opening of 25 additional facilities.
Shares of Prologis [PLD], the giant among the warehouse REITS and a super-hot stock during the pandemic as Amazon was ramping up in the industrial sector, has plunged by 42% from its high on April 28, just days before Amazon’s warehouse footprint reduction became publicly known, which took the whole sector down.
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How did they get caught so flat footed? The pandemic switched most non grocery shopping to the internet. It was pretty obvious to me that was temporary. It seems like management is pretty arrogant and short sighted to think they were suddenly going to own retail.
To many people shopping is like a theme park. They enjoy the social interaction, touching the product, being out of the house. They don’t mind the driving and parking, no matter how much they might complain. It seems like amazon always manages to screw up and not make much profit, even though their revenue is huge now.
“How did they get caught so flat footed?”
The belief in “QE Forever.” Those heavily vested in the financial markets still believe in new ATH in the stock markets when the central banks pivot. We saw how they blew things out of proportion with the rally after BoE’s decision for temporary bond buying, and called it the end of tightening and that the Fed would follow BoE.
should be nothing a few $billion bezos has that can’t remedy situation
or is he
BLANKET CAPITALIST in dimwitted democratic clothing
using just $421,000,000 in fake 501C-3 pac money to sway elections
I’m very financially ignorant, but still you seldom make sense to me, most articles and comments do. Is asking an explanation too much demand on your time?
I was similarly surprised at the breadth and depth of Amazon’s actions reported here, Harrold.
Wolf has been saying services has resumed growth and inflation is hitting hard in that sector. I assume this impacts Amazon’s business. If inflation is hitting across all sectors and wages aren’t keeping up (they aren’t), it stands to reason that people have to cut discretionary purchases.
Agree about some shopping being based on the experience. But if large gathering entertainment is coming back to life, I’d expect the brick-and-mortar retailers to be in competition with it, rather than online shopping.
Or, maybe Walmart’s e-commerce is finally catching up?
There is a whole generation of business leaders and executives who haven’t seen a major downturn. Their biggest memory is the 2020 pandemic where Fed and Govt printed trillions to revert the downturn in a couple of months.
These leaders have thrived on boosting revenues by expanding operations with no regards to efficiency and profitability because ZIRP rewarded this behavior.
Many of them have actually abandoned investing in core engineering and instead expanded sales, market operations etc to levels where they are unsustainable.
“There is a whole generation of business leaders and executives who haven’t seen a major downturn.”
WA, excellent observation. We all get tempered by our experiences. I remember my dad telling me stories from the Great Depression; it left an indelible mark on his world view.
We are all shaped by environmental inputs!
well here’s another
this morning – 7am at Home Depot Pro dept
E M P T Y
asked employee what’s going on???
his store is DOWN cool $1,000,000 per month in sales from contractors alone
they are usually standing room only with 10 contractors in line
“Many of them have actually abandoned investing in core engineering and instead expanded sales, market operations etc to levels where they are unsustainable.”
hasn’t that been going on since 1980?
Conjured and borrowed money to run legitimate businesses out of town.
Now the Piper has come to be paid.
A couple of other factors beyond wages not keeping pace with inflation:
1) People are getting more conscious of the waste generated by all that packaging.
2) Porch thieves are a growing threat to on-line delivery, especially when people are affected by “back to the office” company policies.
3) On-line ordering from other sources is improving.
These aren’t “Amazon-killers” – but they’ll affect Amazon’s growth.
On a side note – business plans based on extrapolation from short-term “happy path” data (while ignoring long-term threats mentioned by “negative Norberts”) have long plagued big business.
I’ve found that in many cases ordering directly from the manufacturer is cheaper than ordering from Amazon.
I can add one more bullet:
4) Amazon deciding to go cheap on its IT personnel quality. Making the same mistake that Walmart did.
When buying on the Internet began, Walmart was one of the first out the door with a fantastic website where navigation was superb, search results were great, so was overall experience with their site.
Then Walmart appeared to have gone cheap. Switched to outsourcing and depending on cheaper but lower quality of coding and programming. Now, going to the Walmart site is a nightmare. It seems to be competing with eBay. Trying to find out if an item is available at a store near me needs a Master’s degree in shopping at sloppy websites.
Amazon is going down the same path. I read one star review of products first and now item after item I’m finding the reviews to be mixed up. I was looking into the reviews of a food dryer. The first one-star was about the dryer, the next five were talking about some necklace, then one about the dryer and the next several about some paint.
They seem to be losing their mojo with reviews, which IMO is a major factor in Amazon’s popularity, in taking a shopper back to their site to find out about what others are experiencing with a product.
Similar story with Home Depot’s eSite.
They all seems to get rid of their best IT personnel at the worst time..
You can’t order from the manufacturer and get a cheaper price than Amazon. It’s a violation of the contract the seller made with Amazon. Find a seller who doesn’t sell on Amazon and use them (do research on Amazon) Typically a specialized seller has product knowledge. For me, bicycle repair and upgrade part assistance. No so on Amazon.
As to the post, office space investment has always been a head scratcher to me, given vacancies exist.
Amazon reviews are corrupted to the max, many are paid shills. A friend who was unemployed worked for a marketing firm writing fake reviews for Amazon until she couldn’t stomach the ethics of it anymore.
My personal experience with amazon is comparable to a company here in The Netherlands called Bol.com. Both started as online booksellers, then went on selling goods they bought in and offered themselves and then allowed third parties to use their platforms. All went well until the little Chinese sellers came in and started selling their junk stuff. A lot of purchases that looked great on screen, turned out to be just junk, bad copies. So as a customer i now had to carefully check who the real seller was and where the goods came from. With a lot of goods that was too much of a hassle and i stopped bothering and started to go back to the physical store or looked for alternative local online sellers. If i was to spend time, i better spend it well. And to my amazement there are far better prizes to be found for better quality goods. So these early ones that became as arrogant as they got big are losing customers.
I think it is called competition?
And i think that is a good thing.
I agree with you about the proliferation of really cheap junk on Amazon. And like you I discovered a few years ago if I could find tools or home repair items I needed locally (HomeDepot or Lowes) they were cheaper or no more expensive than Amazon. I also found speciality sites (like Rockler for woodworking supplies) offered prices that were very competitive with Amazon.
Amazon is not my go to place, it is my last resort.
I had a small contracting business for 17 years in way north CA. Sure, I could buy tools and some supplies online cheaper or at some of the “big box” stores, but as a small local business I liked to support other small local businesses (still do) so I bought from them. Sure it cost a bit more, but not like twice as much, and knowing I could go back and get things serviced and establish relationships with people who understood things, not some clerk who never held a hammer in their life. I know Wolf talks about his experience with in-person shopping and getting frustrated with products not being available, but when the products are available from a local business, I at least try to support them before going another route. That being said, I totally understand someone wanting to save money and looking for the best deal they can. That’s what makes a market.
I received fakes of well known consumer goods a few years ago from Amazon, and frankly I couldn’t understand how they could let it happen, as it turned me against them and like any disgruntled customer, i’ve told dozens of people of my plight.
Was it worth the few bucks you made on the transaction, Jeff?
I have to factor in the cost of going from retailer to retailer. While not “remote”, we live in a community 7 miles from the nearest nothing. Stupid things like a certain brand of mouthwash (for geezers who live without fluoridated water), soaps for sensitive skin, etc., are unobtanium at the local CVS, Walgreens, and the like. Amazon has it, it comes to my door, and it’s either pennies more or it is less with subscribe and save.
I had a lamp to fix (stupid 3 way socket wore out after 30 years – the nerve!) and checked local retailers online – including the orange box. Got a Leviton variable socket for $3 less than any one of them and it came to my door – saving me $5 in gas and now we longer need to buy stupidly expensive 3-way bulbs.
The batteries in our alarm sensors started to fail. Went to the local store and they were $8 each. The alarm company… don’t even ask. I bought 30 of them for $2 each on Amazon. Not a dud in the bunch as they reflected current date codes and the same name brand as ADT supplied.
So, Amazon is not useless nor consistently overpriced. Just use it selectively. I don’t buy off branded stuff from them. If it is “repackaged”, it goes back immediately as that’s usually a sign of counterfeiting.
The proliferation of junk on Amazon has made the site useless. Search for a pair of cargo shorts and the top hits are brands like XYZippo, BL8ty, and Effershitz…
Perhaps ‘junk’ exists on Amazon because it finds a market.
One man’s junk is another man’s treasure?
Wish is the king of junk…. followed by ebay. With Amazon, if you are careful to read the description, check out the reviews, and look around for product reviews outsides, you can score a good deal. Make sure to check prices outside of Amazon. Besides Amazon is pretty good at the delivery and return process.
eBay used to be really good with finding legit Japanese parts for various import cars back in the early 2000s (Honda/Nissan/Toyota), now it’s pretty much only knockoff AliExpress Chinese garbage. The sellers I used to frequent for hard to find authentic goods are long gone.
I agree. As I often refer to amazon shopping as “the wild wild East”, and have often found more reputable products with good pricing and free shipping at individual sites.
They had to implement a USB-C cable testing facility because so many customers fried their VERY expensive electronics using Chinese garbage cables. “It’s just a simple wire, and I need a spare.”
(USB-C, who thought that crap up to begin with?)
“It was pretty obvious to me that was temporary.”
Since there is a name for their error, the Bullwhip Effect, their error is apparently nothing new.
They had to know that the “good times” would end, however companies are loathe to give up any potential upside business. I guess they figure they can always cut back and trim costs if the tide turns. No Executive ever got promoted by giving up market share…
Smaller companies, that might not survive this transition will intentionally not expand and/or take on more business, knowing that with an expansion, comes more risk should the boom times suddenly end (and they can’t cut costs). What bugs me is when we taxpayers are left holding the bag. For example, Corporations scream for more immigration to meet immediate staffing shortages, then a few years later when the bust hits, they lay off all of the workers and handover the resulting societal issues to the government (worker retraining, support handouts, etc.).
For awhile literally nothing else in large parts of the country that competed with Amazon was open. Where I live, Walmart and Target could only keep open those parts of the store that sold groceries.
A temporarily forced monopoly. Talk about government picking winners and losers.
AGREE Harrold 100%!
Humanity likes in general to be free thinking & especially when it comes to individual’s taste, you are not going to order via AMAZON’S “meal on wheel”
You don’t know if it’s good.
For me no way!! Yuk
Harrold,
You are talking about “Shopping Therapy”. Online is nowhere near as good. Petunia would be your source here for information on that pastime.
I also wasn’t aware of any “warehouses”. I thought the Fulfillment Centers had everything. So, they are just sorting centers, like the 150K sq ft (workroom floor was 110K) P/O facility I worked in for 17 years. A small one. One, in NJ I believe, was 1/4 mi by 1/2 mi, I was told at Tech school.
They said people went out in handcuffs almost every night.
But NO warehouses, the mail cannot stop moving, the trucks all roll at certain times and if a manager (even after crying and begging the driver to wait) can’t get it out, it is called “going stuck” and someone must be blamed. Maint was a good choice, and I have had many arguments with a floor manager that there was nothing wrong with a given machine and I was not going to shut it down and “work” on it….but they still had “downtime” in their report. Postal Inspectors even had teams that searched for hidden late mail. Contrived or true versions of “delaying the mail” can get people dragged into the inspectors private rooms with outside entrance, disciplined, or even time at Leavenworth.
One of the reasons I trust US Mail way more than any other delivery outfit, no matter how much the private outfits would love to tear it apart and cherry pick the most profitable services/areas, and are relentless in their efforts to destroy it. I put 2 stamps on my free mail-in ballot, to show workers I care.
I don’t study Amazon’s operational mechanics much at all, but totally amazed that such a market cap juggernaut having had almost 30 solid years to mature and refine its business model actually lost money these past two quarters.
Imagine Wal-Mart (Amazon’s head-to-head competitor) running a loss after so many years in operation. Fund managers would be crying rivers of blood over that.
The drop in retail sales must be phenomenal, likely way more than the big corp guys are letting on. I’m seeing a lot more substantial coupons coming to my inbox as well as big sale prices on things (unfortunately the things we don’t need). I’ve had my eye on a few things I’ve wanted to buy but I decided to wait a few months to see what happens.
On a side note, would that make his girl friend a work from home wrecker? I hear the ex is back on the market.
“The drop in retail sales must be phenomenal”
I deliberately quit buying so much on Amazon (or anywhere) about 3-4 months ago …… I just had a bad feeling about what’s coming , and got tired of seeing a huge Amazon bill for stuff I didn’t need.
I have four months this year with zero AMZ purchases. Unprecedented since 2011.
Walmart and Target have become competitive in the space too. Now it pays substantially to shop between these.
I let prime expire for the first time in years back at the beginning of summer this year. I *might* get it for a month when I do my Christmas shopping for convenience but otherwise I’m tired of Amazon becoming another aliexpress with cheap Chinese crap and their constant raising of prime prices now. It’s rather nice not having it once you adjust. Similar to cutting the cable cord- hard at first but if you stick with it you adjust nicely.
If/when I do buy from Amazon I usually bundle a few things up to still qualify for free shipping. It’s taken a bit of adjustment but there’s only a few areas of my life where Amazon is still an attractive shopping option because they’re niche items not readily available elsewhere.
All I see around here are digital coupons. I’m not giving up my personal data and location on my phone to save a few bucks.
I miss physical coupons.
Amazon’s retail sales are still growing. It’s just that it way over-spent and over-expanded; and its retail division never made a lot of money to begin with. AWS made the money. So now it’s time to cut the over-expansion back down to size. But Amazon is so huge that its cutbacks have a big impact on the bystanders (commercial real estate specifically).
Interesting to learn that none of the offices under construction in Arlington VA are going to be scaled back. I wonder if, similar to as happened during and after the GFC, the NCR is again going to become a “safe haven” for internally displaced individuals amid the financial troubles faced by all the indebted companies that might go bankrupt everywhere else in the US.
I’m curious who they’re gonna sublease to. It would seem that everyone is cutting back. My guess is that a lot of commercial, especially in or near town centers, will be converted to housing.
Tilt ups on the outskirts are a different story.
Doubtful that takes rezoning and tons of remodeling to do. You just can’t turn commercial into residential it don’t work like that. First there is zoning that has to be approved then logistics of turning it into separate units with their own plumbing and electrical.
Contractors now call me back THE SAME DAY. All you need to know about the slowdown.
If they are “halting” construction on 6 office towers, they will be bleed for it. Rupert Murdock did this in 1990 with a credit crunch on his expansion and it cost a fortune to keep the contractors on stand down. Things must be rolling over because this is drastic
The larger question is:
What does this mean for commercial real estate, especially those large corporate office towers?
If this WFH trend continues, we’ve got to see these sorts of decision accelerate across all sorts of industries. Then, how long does it take until corporate buildings to residential conversion becomes mainstream?
AI / robotics (automation) is already pushing us in this direction. In the next 10-15 years, it’s reasonable to think that at least 10% of all jobs are at risk of being replaced. This is a staggering likelihood that’s not if but when / how quickly.
Finally, you have all of these population demographic doom & gloomers preaching that birth rates are falling to fast. I say hogwash! The world would readily benefit from a declining population as we move into the later half of the 21st century. In 30 years, the concept of work is really going to be changing radically. Now, do I think we’ll have an issue in the next 25 years or so as all the baby boomers retire and potentially reverse the COVID trend of declining life expectancy. Sure. But IMO, worldwide population needs to go into a long slow decline.
The only question is do we eventually find a utopian society or is there an event that ushers in the post-apocalyptic dystopia that hollywood is great at predicting. HBO’s The Last of Us really looks to be a good guide.
The rich have found a utopian society.
If you can’t pay, you can’t play.
“Waste packaging”. Absolutely! We live in the country and recycle rather than pay for the trashman. We are now making 2-3 trips a week to the recycler with packaging from Amazon (along with Costco food trash: lots of plastic ) on the way into town. Before covid, we went maybe once a week!
My motto: if it came from town, it goes back into town
Ccat
And, over here in the UK, I was recently in conversation with a chap who holds a Masters in Real Estate Development. Absolutely, certainly – realio trulio – he tried to convince me, the office sector is on the cusp of a rebound and now presents a wonderful investment opportunity.
Delusion always precedes bankruptcy.
Was he sweating with a desperate smile as he explained all this…?
Not at all; he is a true believer.
1st bit of disbelief – a University graduate degree in “Real Estate Development?” And here I thought my BS in Underwater Basket Weaving was a shocker.
1) IAN destroyed tens of thousands homes.
2) Ian destroyed citrus, tomatoes, poultry, cattle…
3) Ian destroyed Fl tourism and Disney. Homeless people will live in cruise ships, vacant buildings, tent cities, or go back home to where they came from.
4) The gov will not shutdown during Ian. Gov debt will rise. The fifty years commodities bust is over.
5) Inflation is hard to dislodge. The Fed will raise rates trying to catch up with inflation.
6) Fl is overrated.
7) Ukraine, risk off.
I prefer they “go back home to where they came from.”
Has anyone figured out if Michael Engel is a bot or just a human that sounds like one? :)
When I speak with folks, I like to list random thoughts and opinions without ending in a supported conclusion or even a point.
I don’t think the AI sounds that human, yet.
No, the bots are the people who excitedly enter “buy” bids when the acceleration of inflation slows a bit- any glimmer of hope is a cue to “buy” the “dip” !
I embrace the disjointedness, it’s tantamount to a homeless person muttering sweet nothings to nobody in particular, sure of what he speaks about.
Actually, most of that one made sense to me. Not much chartist lingo. So I don’t see what the problem is. Besides, he is isn’t just a commenter, he is an institution here. And unlike some, I sure don’t see a hidden agenda, which is kinda refreshing to me.
I agree on Mr. Engle. He can be lucid if he proofreads before sending.
Amazon will continue to be hurt as the savings rates decline and the ability to use one’s house as a “house ATM” machine becomes less and less feasible. Housing debt drives a large percentage of consumer over spending, not equity markets.
Per Bloomberg:
Yale University Nobel economics laureate Robert Shiller analyzes the relationship between the consumer and home prices:
Changes in equity wealth exert considerably less influence over changes in consumption than changes in housing wealth. With a two-quarter lag, year-over-year consumption has changed by nearly three cents for every dollar move in equity wealth… The housing wealth regression indicates that every dollar of changes in housing wealth leads to a 38-cent change in consumption.
That housing wealth exerts a greater influence over equity wealth isn’t all that surprising, he said. Consider the geography. Nearly two-thirds of US households own their home — not to mention their homes being the largest asset for most people except perhaps wealthy families — while stock ownership is highly concentrated to a few. In fact, Peta pointed out that 50% of equities are owned by the top 1% of households by wealth.
A detail, there is no Nobel laureate in economics. It is Svenska Riksbanken, the Swedish FED, that hand out the price in memmory of Nobel…
Just another bank trying to create its own legitimacy.
There is a good story behind that first one. Sadly I have forgotten it. But I remember statements like “nobody should have that kind of power”, and of course the Nobel family is still pissed about it, as many treat it as a regular Nobel prize. Uncle Milty is my favorite destructive example and his “Chicago School” gang…..the formation of which is another good story.
There’s way worse than Milty…check the Nobel laureates behind the Long Term Capital Management crew that required the Greenspan Fed to unwind their trillion dollar derivative exposure.
Thanks, I did.
To me it’s just part of the ongoing “march of the derivative instruments”, that Liz Warren thew a shit-fit about on the Senate floor, and Soros at dog and pony “search for the guilty” show after GFC also mentioned as unstoppable.
Too complicated to even put layman understandable names on, like Milty’s “trickle down”, which I still think was more damaging, especially when coupled with the rest of the Reagan program. That was a mere 3.6 B bailout by the NY Fed. Chump change now, unfortunately.
But yeah, two “Nobel” economists in on that, and the usual decent amount of fairly complex BS math to justify it.
Still learn more from articles and then the comments in the back here, than the fast moving “chat room” in the front. Guess people are either impatient, want to debate, have strong agendas, and don’t care to learn, or want to try to control comments……or whatever.
During GOP controlled budget committee voting, Bernie Sanders said the same thing in discussion after every item, prior to a party line vote. “0.1% have net wealth equal to the bottom 90% net wealth” I have never seen this stat challenged, and also believe it is now 92%….or was long before the Fed recently went after inflation seriously, anyway.
Watch CNN and especially CNBC destroy him in favor of the DNC pick was very sad, but he sure started many people thinking about our extreme wealth inequality and wondering why. We owe him a LOT, IMHO.
Wow! This is a big deal. Are the warehouse workers being let go?
Hoovervilles are arriving in most cities. The disruptors disrupted, alright. Creative destruction is fine, I guess, if one is on the winning side.
“we’ve got all the right answers”
— Oingo Boingo, Winning Side
Time to convert those commercial properties to Soviet housing clones. They are doing it in San Diego.
If you’d like to experience the future of Amazon’s work from home customer service and “best-in-class support for customers.” just call Xfinity.
It’s only a matter of time before these jobs are exported to places that speak broken english and getting fired by text message becomes a thing.
The whole point of modern “customer service” is to make it as inconvenient as possible to speak to a person so that you give up in frustration.
Not much better at brick-and-mortar retail. I used to work at Kroger in the 80’s when the store had close to 200 mostly part time employees. The one near me now is a ghost town. There are enough customers (though far fewer than where I worked) but almost no visible employees, mostly in the specialty departments. Mostly self-checkout now too.
Try Publix in Fl. Excellent customer service, will walk you to a product if you need help. Always plenty of staff hustling. Checkers even in their 80’s working part time and pleasant too. Wonderful to see a checker 70 working with a bagger 17, or Visa versa. Yes, prices higher than Wally World. All depends upon your needs and wants.
Very familiar with Kroger in Calif. High priced spread, but very lacking in the employee, service areas.
Checkers in their 70’s and 80’s is an unfortunate sign of the times. I suspect they’d rather be making cookies or working in the garden.
The young checker’s don’t seem to survive. At the local grocery where I shop, you’ll see a young-ish checker being trained by a veteran in her 60’s. Next time you visit, the veteran is there but the newbie is nowhere to be found. If you ask, they say they’re (the newb) no longer with us”.
Big YEP on point one.
Only retail experience I had was 6 mo P/T at K-Mart in Bldg Mat’l Dept.
Mostly loaded stuff. Have tied 1/8″ thin pieces of cheap paneling on small cars, even beetles, using brown twine and duct tape.
“Keep your hand on it and take the slowest way home you can”
Was also where the shoplifters were marched out to the cop car. Almost once a week, on avg.
Learned the interesting store structure also, central accounting with periodic visits from pretty upstairs girls and scary creep who liked to flash his 45 would pick up register cash. Each Dept manager was on their own, and could make a lot of money if smart. Plus they had many loudspeaker codes.
Caroline Red was fire.
WFH is a big savings to companies that can make it work. There are a lot more people who can work from home so I’m sure the pay and benefits will be coming down, another savings for the corporations.
Besides, working customer calls for Amazon is a miserable job. I know a gal in the Philippines that works for the Amazon call center in Manila. She is paid less than $500 a month and the abusive and obscene calls come in constantly. She has experienced America now without ever being here. From her end, it ain’t pretty.
Yeah, those Amazon call center jobs in US office buildings are gone.
I may be missing something, but IMO a retailer must screw something up really big time to warrant a call from a customer nowadays OR make it by design to force a customer to call. If it’s the latter, the extreme frustration should be very much expected. Last year I HAD to call Xfinity to cancel when I was moving. There was no option to do it online. Probably the worst 30 minutes spent over the whole year – absolutely pointless conversations with three idiots one after another asking the same question of if I want to stay with Xfinity. Like, what if I want to, would you magically expand to the other state where you don’t operate?!
If those call center jobs are gone, I’ll be the first one applauding. Zero value added, pure frustration and nothing else.
Goes with the territory, call centers are the service-sector sweatshop. I used to work in a call center for credit card service and became well-acquainted with the proportion of superflous orifices in the US population. A burnout job.
This is an example of why those who implicitly believe in a full employment recession are wrong.
Sales and profits don’t have to decline for corporate America to issue pink slips in mass. All it takes is a sinking stock price and inability to meet Wall Street EPS expectations.
I haven’t been tracking EPS estimates but given the flat to negative headline GDP numbers and the equally poor results outside the US, it must be happening regularly.
Once the stock market moves noticeably below the June lows, I expect a “light switch” to flip where corporate America simultaneously realizes it isn’t temporary. Job cuts and budget cuts will follow in mass, as always.
Augustus Frost,
You will want to watch the movie,
“Company Men” if you haven’t already seen it. It confirms every point you make in your comment.
Just a sample of items I ordered from Amazon today compared to previous prices for the same items in the recent past:
January 23, 2022: $8.93
September 30, 2022: $9.98
+12%
December 11, 2021: $9.24
September 30, 2022: $10.55
+14%
July 19, 2021: $8.97
September 30, 2022: $9.49
+6%
Dj : No the warehouse workers will also work from home, except Uncle Sam will be paying them.
Government has no problem paying hordes of Raytheon and General Dynamics workers for nothing. Cut the corporate middlemen out, pay them to stay home, win-win for us taxpayers.
Large contracts from corp types mentioned often specify how many and what type of people will be on the job, hell, some of them might play cards all day….few workers though, mostly Mgrs, some Engrs.
It’s pork “job producer” votes for the congressperson and corps love it too….my lobbyist uncle helped negotiate hundreds of them…extremely well connected in both DC and AF and got rich as hell, especially during Vietnam.
Favors trade like bricks of gold bullion in nice resort areas….that’s why I ignore all the Jekyl Island “conspiracy” stuff…I was at Hilton Head Is. (pretty close) at Uncle’s Beach House a few times growing up and overheard some stuff…met players…..it’s just how it’s done.
There were fewer workers because, at btm, ALL Mgrs are pissed about Unions even existing. Why should dumbshit non-managers have a say in how to manage?…..even Engrs.?
Fed blew fake wealth bubble with low rates. If long bond is 4% then SP500 isn’t worth nearly what it was when long bond was 1%. I get about 1100 with 3% risk premium. Even with no risk premium I get about 1800.
2000 is still a bubble territory imo. Will they let it go below 3000?
They can’t stop it. It’s not a mechanical process.
Look at every world market for an example, especially Japan. Japan is now (today) just over 33% below in December 1989 peak. QE and NIRP most of the time, including direct buying of ETFs.
Yes, S&P 500 @2000 is still an outlier valuation wise which will be evident once the profits from the fake economy vanish and dividend cuts + ratings downgrades follow in mass.
Gee. Im one of the dumbest people on earth and even I saw this one coming. Maybe I can get an executive bonus? Lol!
Me too.
And I was one of first ones to say their drone delivery will not match the hype it created. I bet the stock gains from drone delivery new is not clawed back yet.
Everything learned in delivery drone programs AND self-crashing car and similar programs WILL be applied to drones. Trust me. Same hardware, same software.
During the pandemic I purchased all my supplies for home and business from Amazon and other on-line sources. But now I get everything I can from an old fashioned ( but pretty large) hardware store. It is staffed with lots of crusty old guys who can help you almost instantly. There is never a wait to check out, and there is very little packaging to deal with. To buy a hammer you pull it off the hook, and don’t have to unwrap and dispose of 5 pounds of packaging. The place gets busier every day.
And I’ve discovered the mom-and-pop hardware stores are often cheaper than Lowe’s and Home Depot. You usually can’t buy single parts such as bolts or screws at a big-box store, but Ace is be happy to sell me a bolt for a quarter or less.
And usually it’s for some sort of project that I’m working on RIGHT NOW, so I’m not gonna wait three days for my Amazon package to arrive.
It seems Ebay has emerged as the best retail business model. They don’t have warehouses, trucking, distribution centers, etc, and still bring in a good margin on everything sold there.
Their feedback system has worked well over the years and I know there are a lot of sellers who are reliable. Most things sold on Amazon can be found on Ebay at equal or better prices many times with free shipping.
I’m borrowing this comment from another financial blog which I believe explains the situation well.
“You haven’t seen a capital spending bust. This is just the cap rate change against risk free. They think recessions are caused by not enough demand. Not true. They are caused by overstimulated demand resulting in overstimulated investment. Bust in capital goods creates a down draft in all.”
I see it every year in the usually dry SoCal wilds. A few weeks of rain brings a myriad of colorful life forms out. They replicate as fast as they can, and then everything goes dry in a couple weeks, and they die off. Many species are surprisingly adapted for this sort of environment. Their DNA waits patiently for its next opportunity. I am an example.
Malthus expressed this for humans.
Because so little about us is instinct, and so much learned,the knowledge or craft of survival decays in every generation and must be fully rebuilt. Hence the kid with the nose ring at the store who knows less than nothing. Terribly inefficient but a few are highly adaptive. The die-offs can be disorderly and brutal, though.
Florida will be interesting to watch, from afar.
Similar to the Mouse Utopia/Behavioral Sink experiment in the 70s. You stated to more eloquently though with the nature observation. Now I need to read Malthus!
DNA has played little to no part in Homo sapiens evolution for a very very long time. Read up on Epigenetics, just for starters, professor, you are in my area of expertise now.
I don’t even think the cap rate *spread* over risk-free has widened much and may have contracted a little bit. The RFR has basically gone from zero to 3% for now and everyone knows it will go higher. This is just repricing the risk-free rate WITHOUT any blowups happening yet.
“…and everyone knows it will go higher.”
Depends where inflation settles out. If it settles at 3%, not much higher for RFR. If it settles at 5% or 6%, different deal.
*Cost of Gas for all those delivery vehicles
*Cost of labor
*and there is something about a 15% minimum corporate tax
I buy most of my stuff via the web. I hate to shop and if I can get on the web with a reasonable expecation of quality, I will do so. However, things like cars, food, clothing, and more recently, furniture, I am shopping in person. I recently bought furniture on Amazon that was cheap junk where the wood actually broke both times. So, I recently got a used EKORNES chair, which is built in Norway, very comfortable, and has a solid wood base, about 10x the quality of the Amazon stuff that I bought.
I think Amazon is cutting back because people are not buying as much, but also the fact that Walmart, Ebay, Target, and others are getting much more online and are competition now. These companies have started acknowledging that online retailing is here to stay and Amazon, all though they are not going anywhere, is coming back down to earth.
Depending upon style preference and budget, you should consider “vintage” or “antique” furniture. That’s what I buy exclusively.
Yes, it’s used but also real hardwood and can be bought for less than usually cheaply made store furniture.
Amazon is cheap chinese junk,they have no quality control most people won’t continue to trade labor for inferior products.Just type in best price Amazon usual doesn’t win
Big Box competitors are also offering something that Amazon doesn’t… A hybrid shopping model. A customer can look up a product on a store’s website, get a price, and see if it’s physically stocked at the store so they can stop in and pick it up without shipping issues or get it while they’re shopping for other items. Ship-to-store can be useful as well, especially for those who want to avoid package theft. And the biggest hassle with online orders, in my mind, is the return process. If I buy something at Target, Home Depot, Autozone, or wherever whether it’s in-store or ship-to-store, making a return is just so much easier. Wal-mart, Target, and others have also been very smart to include groceries in their lineup so customers show up for the food but end up shopping for other things while they are there. Lastly, I’m going to say something bold here… Clothes shopping will never become dominated by online retailers. Yes, I said “never.” Sure, some folks (mostly older guys) may buy the same brand/style shirts and pants over and over and over again that they know will fit, but that’s a small portion of the population. Most people, especially younger folks with an image to worry about and fads to chase, are going to want to try on their clothes before buying instead of hassling with constant returns.
It’s 100% clear that online retail has changed the landscape and isn’t slowing down anytime soon, but it would be foolish to assume brick-and-mortar retail will die.
Some retailers like Walmart or Best Buy will bring your purchases out to your car with no need to enter the store.
Amazon employees are locally referred to as “amholes”…..the invaders having driven local rents up making living in the Seattle area unaffordable to the alternative life style folks, especially those residing on nearby Capitol Hill.
A lot of folks I know have figured out that you can just buy your cheap junk on Aliexpress or nice quality used items on Ebay and just cut out the Amazon middleman. You may wait longer for shipping is the only caveat.
Maybe Amazon in the midst of a K-Mart/Sears-Roebuck meltdown.
Personally, I don’t like buying on line all that much. Too many items I’ve bought were wrong, or not up to expectations. The inability to inspect a purchase beforehand often ends up being a purchasing clusterfuc&. And as a human, I sorta like human interaction, even if non-virtual shopping is rather mindless.
The search results on Amazon seem a lot sketchier nowadays. Like I’m looking for a hard drive and I have to weed through all the no-name items with prices that are WAY too good to be true and even when I get to the brand names multiple sellers are listed with multiple prices — some Prime and some not, some including shipping and some not, some that deliver in two days and some in two weeks and so on. And that seems to be every item I shop for.
This is one of the main reasons I cut my Amazon purchases from 100+ a year back in 2014 to less than 15-20 last year – it’s impossible to trust Amazon reviews at this point. Some Chinese gadget that popped in a market less than a year ago would have 4000+ reviews at 4.6 average. Some well-known branded similar device that has been in the market for years would have 200 reviews with objective 3.9 average. Are you serious?!? The amount of shilled junk, especially in some niche categories, is just unbelievable. And don’t get me started on “promo codes” – basically an Amazon-legitimized referral codes to make shilling on blogs and social media easier.
Maybe they shouldn’t have wasted 1 billion on Rings of Power? I still fail to see how spending so much on their streaming service can help their profit. I only have Prime Video because I use Prime shipping. Barely ever use it though.
I presume it’s a loss leader for retail but agree with your sentiments.
Of course, I also think Netflix had an unsustainable business model too. That’s why they are adding an option with adds.
Agree on Netflix. They were greenlighting everything because they could borrow as much as they wanted under ZIRP. Now its time to pay the price.
I just wonder if having Prime Video actually encouraged people to sign up to Prime that wouldn’t otherwise. Me living in Hawaii, Prime is a no brainer. I save 1000s a year on shipping. The video component made no difference in my decisions.
you hit on a HUGE advantage they have and which their competitors DO NOT have. amazon has refined fulfillment and logistics to a hyper efficient level and continues to do so. they may have started as a book seller but that’s the lemon next to the pie now. i use them nearly daily and am often amused by just how fast they move the goods which is based on them knowing what we’re all going to buy and where we are. they know. their recent moves to efficiency are simply wise business based on their recon which is based on many many BILLIONS of data points.
In a real economy, monopolies are self-limiting because resources are finite. Since 2008 we’ve been in a fake economy with fake “infinite” resources. Now that Powell has turned off the counterfeit, real negative feedback loops are beginning to operate again. It’s wonderful to watch.
“Amazon, which booked net losses in Q1 and Q2 totaling nearly $6 billion…”
So Amazon is suddenly reporting losses just as a tax on REPORTED (not tax) net income is instituted. Hmm.
Incentives matter.
c smith,
Nonsense. Why do people keep making up BS just to have fun? Those losses were real — and not welcome at all. Here is the discussion of the losses in Q1 — which I linked in the FISRT LINE of the article, and instead of making up BS and spreading this manure around, you could have read the linked article and known what’s going on. So read it now:
https://wolfstreet.com/2022/04/28/afterhours-massacre-as-amazon-plunges-apple-intel-tesla-even-meta-dive/
And besides, so why would Amazon crash its stock by around $400 billion (with a B), yup, when it reported those losses, just to save an additional little bit (maybe $4 billion?) in taxes? Your statement is just hogwash.
Business model we’ve enjoyed is ending. Days of cheap foreign crap available via Amazon is ending. China/asia/Russia have moved on. USD no longer desired. SOC.
I think that if you compare the stock prices from 2020, you will see it has gone down, but that was a super bubble, created by the pandemic. I look at 5 year prices. I am no expert though.
I love Amazon, and publish books on their platform, so I will always be with them. But the amount of low quality Chinese crap they are peddling is what will bring them down. In the short run, Amazon gets a cut of about 35% of the purchase price. They only have to allow the product to be placed on their website. I shipped my own books, from my house, and they still got a huge cut. That is pure profit for them. That is probably where the bulk of their profits has been. Third party sellers.
Because of the fake reviews on some obvious cheap Chinese goods, I’ve started looking at retail stores online. They sell name brands, and you have a better shot at good quality. Amazon still has people beat on delivery. When the brand name is EIEIO. You might guess it was shipped directly from China. Short term profits for Amazon, with a definite downside in platform trust.
Alternatives to AMZN:
1) Walmart…new rules: delivery only by subscription, minimum order $35. (AMZN 1999). Those WM trucks burn fossil, AMZN going electric.
2) ebay…what, used?
3) everybody else…who, really?
4) customer pickup, we bring to your car: always empty post-covid. Better as handicapped parking.
Customer Support @ AMZN competitors: fuhgeddaboutit.
Returns @ AMZN competitors: double ibid.
Does AMZN Retail suffer if The Global Cloud (and AWS) deflate?
Yes.
Can AMZN find other cash cows?
Probably…TBD.
amazon and fed ex both are making moves in anticipation of he recession deepening. and being worse than we are contemplating. they are the ULTIMATE canary’s in the coal mine. they their use of the forecasting based on big data and AI. amazon especially can tell you who looks at something and either buys or doesn’t and if they elect a cheaper item(s) or less of them. wal-mart might make a run at their model but the fact remains that they are seeing farther and more clearly because their forecasting tools are the best in the world.
hang on folks…it’s gonna be a rough two or three years
Well, Bezos sure timed his departure perfectly. Where is he now?