Amazon ecommerce sales fell 2% in holiday quarter

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.”