By any metrics, the company’s earnings were off the charts, and they hardly came as a result of cost-cutting. The company almost doubled its revenue and profit numbers while spending more than $9 billion on capital improvement projects.
Among those numbers: Operating cash flow increased 42 percent to $51.2 billion compared with $36 billion for Q2 2019. Net sales increased 40 percent to $88.9 billion compared with $63.4 billion in the second quarter of 2019. Operating income increased to $5.8 billion in the second quarter compared with $3.1 billion, and net income increased to $5.2 billion compared to $2.6 billion. Video hours on Amazon Prime doubled. Online grocery sales tripled.
Amazon says it has created over 175,000 new jobs since March and will bring 125,000 into full- time positions. The company now has over one million regular and seasonal employees. The company added that it spent over $4 billion on incremental COVID-19-related costs on employee safety, employee bonuses and delivery costs. Other capital expenditures went to fulfillment, transportation and investments in Amazon Web Services (AWS). The company’s list of achievements for AWS filled two pages of its earnings press release.
On the earnings call, CFO Brian Olsavsky pointed out that Q2 2020’s numbers topped Q4 2020 –and that Q3 would be even bigger. “As a reminder, Q2 is typically our largest volume quarter for the retail business. That's not the case this year,” he said. “What that means is that we can flex into space normally used for second-half peak demand, despite the strong operating leverage in Q2. As we move toward peak in the second half of the year, we will ramp up our space needs even further, and we'll be adding significant fulfillment center and transportation capacity.”
In other words: Amazon says it can do better. Part of the reason it crushed Q2, in addition to the overall digital shift caused by the pandemic, was the demand from its Prime customers. Olsavsky didn’t detail any Prime member spending or even intimate how many new customers joined via Prime – but he said the company continued to see high engagement throughout the quarter, with Prime members shopping more frequently and with larger basket sizes.
The Q3 guidance given by the company called for a 30 to 40 percent increase over 2019. It’s proof that the company believes the digital shift will last, but Olsavsky played coy. “I think it's hard to tell, but we're super encouraged by the fact that grocery delivery picked up and that it [has] accelerated versus what we were thought,” he said. “And we certainly are glad to be there for our Prime members who are shopping more frequently and buying more. We do know that there are other options, but they’re limited. Hopefully, things like masks and gloves and cleaning supplies are just one-time purchases, but we'll see.”
CEO Jeff Bezos was not on the call. The topic of rescheduling Prime Day did not come up, with the exception that Olsavsky hinted it would take place in Q3. However, a different scenario reared its head as the earnings were released and questions yielded no firm date for the shopping event. What if Amazon is worried about its capacity? What if it’s concerned that it won’t have the inventory or fulfillment logistics in place to handle Prime Day in Q3 and then turn around and create happy customers for the holiday selling season?
The question about Prime Day lingers. The earnings announcement emphasized keeping employees safe, but Amazon earned its stripes by keeping customers satisfied. Let’s see if they can do both and still keep Prime Day alive.
Walmart Announces …. Layoffs?
In Bentonville, the news was not so good. Several sources reported on Thursday (July 30) that Walmart laid off hundreds of workers in its corporate offices in functions such as store planning, logistics, merchandising and real estate.
According to Bloomberg, the retailer is also reorganizing its 4,750 U.S. stores by consolidating divisions. 40/29 TV News in Arkansas said it obtained a letter sent to an employee stating that their job would be permanently eliminated. “The letter informed the employee they will be allowed to apply for other jobs within the company and offers the assistance of a job coach,” said the station. When 40/29 News asked Walmart about the layoffs, the company sent a statement referring to its “journey to create an omnichannel organization" and "additional changes this week."
According to Bloomberg, the move is part of a streamlining effort to consolidate Walmart’s brick-and-mortar and online divisions. The cryptic comments made in the above statement would support that belief. It also speaks volumes about how Walmart intends to run its newfound treasure in eCommerce, which was up 74 percent in Q1. Most likely, merchandise managers will buy for in-store and online inventory. It also says the employee count will be a lot tighter at Walmart than it is at Amazon.
Can Walmart keep up with Amazon on the eCommerce front? This latest announcement could imply that they don’t intend to try.
“We are continuing on our journey to create an omnichannel organization within our Walmart U.S. business and we’re making some additional changes this week,” Walmart spokeswoman Jami Lamontagne told Talk Business & Politics on Thursday (July 30). “Our customers want to have a seamless experience whether they’re shopping in our stores, using our app or shopping online at Walmart.com. Our goal is to deliver that experience while increasing innovation, speed and productivity. We will share additional information after we’ve completed our communication with associates.”
Black Friday Details Still in the Dark
Walmart won’t announce its earnings until Aug. 16. That could present as an occasion to lay out the retailer’s Black Friday plans (if there are any). But at least one observer thinks Black Friday will go the way of video stores.
According to retail data provider EDITED, changes such as a new emphasis on employee safety and a need to get away from steep discounts will mean the remaining Black Fridays can be counted on one hand.
“As physical fashion weeks resume, interest in the issue that arose around rewiring the fashion calendar during the early days of the pandemic has subsided,” noted EDITED. “While it may take 12-24 months for any changes to be in place post-COVID, an industry-wide reboot holds value for brands of all sizes. Product seasonality has become increasingly out of sync with today’s customers’ ‘buy-now, wear-now’ preference, resulting in premature markdowns that fuel events such as Black Friday.”