Retailer to expand in groceries, hardware, and video to fashion and cloud services
Amazon.com Inc. (NASDAQ: AMZN) has announced its plans to hire more than 100,000 US workers in the next 18 months, even as President-elect Donald Trump, who will assume office on January 20th, 2017, pushes companies to employ more Americans, as reported by Bloomberg on January 12th, 2017. Earlier during the election campaign in 2016, Amazon CEO Jeff Bezos and Trump had engaged in a war of words, after Trump attacked Bezos and The Washington Post, which Bezos owns.
However, after Donald Trump was elected President, it appears that both parties have set aside their differences. Bezos was among a group of leading technology industry executives who met with Trump in December 2016 in Manhattan to discuss points of concern regarding jobs growth, immigration, and China’s economic relationship with the US.
Amazon’s announcement to hire more people comes at a time when the company is gearing up for expansion in multiple categories from groceries, hardware, and video to fashion and cloud services. The online retailer said that the new jobs are full time and offer several benefits to employees. The new hires will largely support new Amazon fulfillment centers that are currently being built in states such as Florida, Texas, and California, expanded delivery capabilities, and its Amazon Web Services cloud computing business. The Seattle-based company stated that the new jobs will be filled by workers with differing experiences and education levels. The company also said businesses like Marketplace and Amazon Flex will create hundreds of thousands of jobs for people who want the flexibility to be an entrepreneur and work at their own pace.
Amazon’s workforce numbers
Amazon, which had a total of 306,800 full-time and part-time employees globally at the end of September 2016, hired a total of 123,700 globally during the 15 months ended September 2016, according to quarterly filings. Over the past five years, Amazon.com has expanded its US workforce alone by more than 150,000 people; its US workforce has grown from 30,000 in 2011 to over 180,000 at the end of 2016. By comparison, Wal-Mart Stores Inc. (NYSE: WMT), the world’s largest retailer, employs about 2.4 million people worldwide, including 1.5 million workers in the US.
As of 2015, Amazon was hiring an average of about 6,400 people per month globally. Industry watchers have argued that Amazon kills more jobs than it creates because the move from bricks to clicks is causing major disruption in the retail industry. Critics also say that Amazon’s plan to hire workers in its fulfillment centers and warehouses would create mostly low-wage jobs, many of which are temporary and seasonal.
This is in sharp contrast to traditional brick-and-mortar retailers, many of which are cutting jobs and closing stores. On January 06th, 2017, women’s clothing retailer The Limited said it would close all its 250 stores and Macy’s Inc. (NYSE: M) moved forward with plans to close 68 stores and said it will cut more than 10,000 jobs. Wal-Mart is also planning layoffs and store closures at non-performing locations.
Amazon looking to tap low-end customers
After grabbing major market share in the high-end consumer segment with its Prime and Amazon Fresh services, Amazon.com is looking to compete with Wal-Mart in the lower-income grocery segment, when it announced that it will start a pilot project to deliver groceries to food-stamp recipients. The Supplemental Nutrition Assistance Program (SNAP), commonly known as Food Stamps, helps people with limited income buy food and groceries. In recent months, Amazon.com has mostly targeted shoppers who can afford a $99 Prime subscription. However, starting in the summer of 2017, Amazon will deliver groceries to low-income people in New York, New Jersey, and Maryland aimed at gaining leadership in the $800 billion grocery market.
Amazon.com’s move assumes significance since more than 80% of food stamp recipients live in or near big cities, which are served by Amazon’s vast network of warehouses and home to the affluent and poor in close proximity. FreshDirect, Safeway, and ShopRite are also joining SNAP, which provided more than $66 billion of help to 44.2 million needy Americans in 2016. This will be the first time SNAP has accepted online payment for groceries.
Can Amazon.com bridge the gap?
Industry experts believe that Costco Wholesale Corp. (NASDAQ: COST), the second-largest global retailer, mainly caters to affluent customers and Wal-Mart’s customers are mostly low income. Amazon.com believes that it is uniquely positioned to bridge this gap between these two categories with its vast selection and low prices. Amazon’s competition for urban food stamp recipients include convenience stores with limited inventory and high markups. One of the main advantages is that Amazon’s delivery program lets food-stamp recipients use the benefit more discreetly than in a crowded store, where other shoppers can see how they’re paying for their groceries. It is unclear if Amazon plans to deliver the groceries to doorsteps, require pickup from central locations or leave that up to shoppers.
Amazon’s push into groceries follows that game plan of big box competitors that sell food at or below cost to get people into the store with hopes that they also buy higher-margin items such as clothing and electronics. People buy groceries frequently, putting a retailer in regular contact with the shopper and generating order volumes that can help Amazon achieve economies of scale that are crucial to make e-commerce profitable. It is estimated that annual online grocery spending in the US will more than double to $70 billion by 2021.
Amazon is the largest of seven retailers chosen for the two-year food stamps program. The US Department of Agriculture, which administers SNAP, sees access to online groceries as a benefit to urban and rural residents with limited shopping options. The pilot will let the agency work out any payment and security issues before allowing online food stamp purchases nationally. Amazon’s selection and competitive pricing can improve the grocery shopping experience for SNAP participants, while helping them extend their benefits further.
Serving food stamp recipients would put provide a public relations boost to Amazon after an investigation revealed that some predominantly minority neighborhoods in Boston, New York, Chicago, Dallas, and Washington DC, were excluded from Amazon’s same-day delivery service. Amazon has since expanded the service and filled the gaps. Also in April 2016, Amazon introduced a $10.99 a month payment plan for Prime, making it more appealing to those who can’t afford a one-time $99 fee for yearly membership. That helped Amazon increase Prime membership among those earning less than $25,000 a year from 6% in 2014 to 11% at the end of 2016. Some of these customers use food stamps.
The push could be bad news for Wal-Mart, which gets more than half its $298 billion in annual US revenue from grocery sales. The world’s biggest retailer is already battling German-owned chain Aldi and other discount grocers for low-income shoppers. Now the world’s biggest online retailer is chasing those shoppers too!
Amazon.com’s stock stood at $817.14, inching up 0.43%, at the close on Friday, January 13th, 2017, having vacillated between an intraday high of $821.65 and a low of $811.40 during the session. The stock’s trading volume was at 3,775,574 for the day. The Company’s market cap was at $386.61 billion as of Friday’s close.