Staff Cuts at Amazon Stores Signal eCommerce Turbulence Ahead

Recent layoff announcements point to a rocky start of 2023 for eCommerce.

Businesses, in general – especially smaller ones — benefit from the expertise and the technological know-how of larger firms, especially entrenched players with the deep pockets needed to innovate and deploy solutions at scale.  In return, the providers reap the benefits of recurring revenues and a sticky base of enterprise clients.

The positive ripple effects accrue as smaller firms skirt the heavy lifting and expense of building various functionalities in house and constantly fine-tuning their back office functions.

But as the recent wave of job cuts from the likes of Amazon and Salesforce show, there’s some turbulence ahead for the providers as businesses pull back on their own spending.

As reported Wednesday (Jan. 4), Amazon has been ramping up its staff reductions, with a total of 6% of the workforce trimmed, or 18,000 workers. An unspecified number of those cuts will hit the Amazon Stores teams.

Though the Stores division houses the brick-and-mortar operations such as Amazon Fresh and Amazon Go, there’s an important eCommerce component here, one that points to business sentiment.

Amazon’s services help SMBs build digital “brand homes” within Amazon, via landing pages and other online functions that help sellers create an online presence by selling directly across Amazon, picking and choosing various components of that online store.

At the same time, Salesforce announced a cut of 8,000 positions, or 10% of its workforce.

The company, like other software providers, had been pointing to the slowdown in recent earnings call and commentary with analysts.

“Certainly, the buyer environment has changed out there in the market. It’s become more measured,” Brian Millham, chief operating officer at Salesforce, said on an analyst call, as reported early last month.

A Wednesday letter from CEO Mark Benioff echoed the sentiment: “Our customers are taking a more measured approach to their purchasing decisions.”

Too Many People, Too Fast

With a nod to what led to the layoffs, Benioff added: “As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing.”

Amazon’s CEO Andy Jassy has also acknowledged that the eCommerce giant had hired rapidly during the span of several years.

Salesforce and Amazon share a few things in common with all businesses, no matter the vertical: they hire when future demand seems robust, and scale back when it seems demand is going to be uncertain at best — or, at worst, declining.

The companies’ pullback on spending has a ripple effect on the SMBs, which rely on their services to run their eCommerce operations.

For the Main Street businesses that would be among the clients that would conceivably be the key “audiences” of Amazon and Salesforce, caution is in the mix. As detailed in the report “Main Street Health Survey Q4 2022: SMBs Brace For A Recession,” a full 20% of firms expect revenues to decrease in 2022, up 10 percentage points from last year.

Drill down to the smallest of enterprises, and 27% of businesses annually earning less than $150,000 expect revenues to decrease in 2022.

Just 56% of those selling primarily online see sales increasing through 2022 and into the future, which leaves the remainder as firms that see their top lines remaining the same, or declining. Inflation would pressure margins in outsized fashion for those latter companies, which in turn would hamper their ability to keep spending on operations or plunge into new offerings, opting instead to keep legacy processes and tech going for a bit longer.

As for how long? Just 24% of SMB owners think inflation will return to pre-2021 levels in less than one year, which means that the wait-and-see approach may stretch out over several months.