Unlock incremental growth across channels.


Amazon ecommerce sales fell 2% in holiday quarter

On an earnings call, CEO Andy Jassy outlined the thinking behind the company's cost-cutting in 2022.

blue and white Amazon van parked near white building during daytime
Amazon Prime. (Photo by Andrew Stickelman on Unsplash)

After two years of exceeding even its own high bar of bigger and faster, Amazon is in the midst of a slowdown period.

Results from the fourth quarter of 2022 provide plenty of evidence.

  • Net sales grew 9%. Overall sales grew 8.6%, marking the slowest holiday quarter growth in 10 years, according to GlobalData Managing Director Neil Saunders.
  • Ecommerce, characterized as “online stores” by Amazon, fell 2%.
  • Outlook for the first quarter remains 4-8%, which remains in a "light" zone by Amazon standards, CNBC reported.

On an earnings call with analysts, Amazon executives cited a consumer pullback amid rising inflation.

“In our worldwide stores business, with the ongoing economic uncertainty, coupled with the continuation of inflationary pressures, customers remain cautious about their spending behavior,” said CFO Brian Olsavsky. “We saw them spend less on discretionary categories and shift to lower-priced items and value brands in categories like electronics. We also saw them continue to spend on everyday essentials, such as consumables, beauty and softlines.”

Despite the wider pullback, events such as the first Prime Early Access Sale, Black Friday and Cyber Monday outperformed expectations, Olsavsky said.

Third-party sellers were an especially big driver of sales, as they accounted for 59% of overall sales. Sellers aren’t only driving sales, but also Amazon’s business. Amazon’s segment called third-party seller services, which includes Fulfillment by Amazon, grew 20% year-over-year.

Advertising revenue also continued to be a bright spot, rising 23% year-over-year, surging to an $11.7 billion business.

Putting on the brakes

Yet it is also a time when Amazon is pulling back. CEO Andy Jassy joined the call, and outlined several of the ways that the company has sought to cut costs.

In Jassy’s first year as CEO, a big priority was scaling back in fulfillment and transportation. In early 2022, Amazon said it overbuilt its logistics and warehouse network during the pandemic as it sought to scale up quickly to meet the massive demand for ecommerce. So one of Jassy’s priorities in his first year as CEO has been to pull back.

Jassy outlined the cycle:

“Over the last few years, we took a fulfillment center footprint that we've built over 25 years and doubled it in just a couple of years,” Jassy said. And then we, at the same time, built out a transportation network for last mile roughly the size of UPS in a couple of years. And so when you do both of those things to meet the huge surge in demand…it took everything we had. And so there's a lot to figure out how to optimize and how to make [it] more efficient and more productive.”

It’s “a different network” now, Jassy said, and the process of bringing it back into balance is still underway. In the early part of 2022, Amazon delayed some builds and mothballed other facilities.

“To figure out how to be really efficient across all those links and have them be highly utilized and to get the flows in those facilities working the right way, it takes time,” Jassy said. “So we're working very hard on it.” The work continues into 2023.

Amazon also made cost-cutting moves in other areas “where we didn't have conviction that they were going to be big needle movers for Amazon,” Jassy said. It pulled back on physical store expansion in areas including grocery, and closed 4-star bookstores. It pulled back development in devices. It ended fabric.com, Amazon Care, Amazon Glo and Amazon Explore. And finally, the company eliminated 18,000 roles in a massive layoff.

“As we got into the early part of the summer, where we start our operating planning process…there was a lot of things happening in the macro economy. We started that process with the high-level tenet of we want to find a way to meaningfully streamline our costs in all of our businesses, not just their existing large businesses, but also in some of the investments we're making,” Jassy said.

The company thought about it this way: “We want to actually do a pretty good, thorough look about what we're investing and how much we think we need to, but doing so without having to give up our ability to invest in the key long-term strategic investments that we think could change broad customer experiences and change Amazon over time.”

Want to know how to spend your next $1?
Learn More

Trending in Operations

Don’t waste another dime on bloated channel reporting and vanity metrics.
Unlock Incremental Growth

Amazon leads in retail media, with nearly 40% market share

MediaRadar shares the top five brands spending on retail media.

black Samsung Galaxy smartphone displaying Amazon logo

Retail media has exploded in recent years, as the power of ecommerce marketplaces has presented opportunities for brands to reach consumers by advertising on the same platform where they shop and buy products.

During this expansion, retailers from Michaels to Best Buy to Kroger launched their own retail media networks to create avenues for brands to leverage first-party data that comes from sales and loyalty programs for advertising on marketplaces. Gradually, that data is also being used to advertise across the web, as well.

Keep reading... Show less

Latest from Operations