Online retail giant Amazon on Thursday reported a drop in profits that the company forecast for the Christmas quarter as higher employee compensation and other operational problems escape the company’s online shopping windfall.
In a tight labor market, Amazon has raised the average U.S. warehouse pay to $18 an hour and marketed hefty signing bonuses to entice the employees it needs to keep its operations afloat.
At the same time, the retail giant is facing global supply chain challenges. Since then, it has doubled its container processing capacities, expanded its supply partner program, and also increased its inventory investments – which costs the company considerably.
Amazon is forecasting an operating profit of between $0 billion and $3.0 billion for the current quarter, below the $6.9 billion it posted a year ago. Third-quarter net income fell 50% to $3.16 billion, a first since the Covid-19 pandemic hit the US.
CEO Andy Jassy, who took over the top job last July, said the tech giant was facing higher shipping costs, higher wages and worker shortages, combined with productivity losses and cost inflation, adding an additional $2 billion to Amazon’s spending in the quarter, which is expected to double during the holiday season.
In addition, Amazon Chief Financial Officer Brian Olsavsky told reporters that Amazon is considering hiring an additional 150,000 employees to meet seasonal demand in the U.S. over the holiday season.
Amazon is forecasting sales of between $130 billion and $140 billion, which is below analysts’ forecast of $142.05 billion. The company also failed to meet expectations for the third-quarter and has been growing at a snail’s pace since the beginning of the pandemic.