In late April of last year, while unveiling Q1 results, Amazon foreshadowed an overcapacity problem that, by the end of the second quarter, came to plague many of America’s largest retailers.
CFO Brian Olsavsky suggested the company had too much warehouse space and more workers than it needed, after expanding rapidly in fulfillment to meet voracious demand in the aftermath of the pandemic.
The following quarter, Andy Jassy said the company was “making progress on the more controllable costs we referenced last quarter.” He specifically mentioned improvements in fulfillment productivity. In remarks accompanying Q3 results, Jassy reiterated a version of the same line. “We’re encouraged by the steady progress we’re making on lowering costs in our fulfillment network,” he said, adding that Amazon was “methodically working” on cost structure initiatives.
The midpoint of Amazon’s Q4 guidance suggested top-line growth would be the second-slowest ever, while full-year growth would be nearly five full percentage points below the prior low for annual growth (notched in 2001). The combination of slower top-line growth and a lingering overcapacity problem virtually screamed for lower headcount, particularly when you’re in the consumer discretionary business and recession worries are pervasive.
That’s the context for Amazon’s decision to eliminate 18,000 jobs, including cuts announced in November. Most of the cuts are in Amazon Stores and PXT organizations, Jassy said, in a memo, noting that Amazon hadn’t planned to tell anyone about the latest cuts until January 18, but “because one of our teammates leaked this information externally,” the company “decided it was better to share [the] news earlier.”
At this point, I think it’s fair to question Jassy’s leadership. While readily conceding that Amazon had no choice but to expand rapidly during the pandemic, and while acknowledging that Amazon isn’t alone among big tech companies in reversing staffing decisions made during the pandemic, Jassy doesn’t come across as especially sorry.
Sure, his employee memo contained the usual boilerplate allusions to empathy (e.g., he’s “deeply aware that these role eliminations are difficult for people” and he doesn’t “take these decisions lightly or underestimate how much they might affect the lives of those who are impacted”), but what’s missing is an unequivocal apology accompanied by an equally emphatic statement indicating he takes full responsibility for getting it wrong.
And let’s not skirt the issue: Jassy did get it wrong. The macro backdrop was especially fraught in 2022 and as a result, the operating environment is among the most challenging in at least 14 years. That’s a mitigating factor for C-suite missteps, but it doesn’t absolve CEOs of responsibility. There are no excuses. Mark Zuckerberg acknowledged as much last year when, while announcing 11,000 job cuts at Meta, he said simply, “I got this wrong,” a reference to over-investment.
By contrast, Jassy endeavored to explain away the job cuts by way of Amazon’s adaptability. “Companies that last a long time go through different phases,” he said. “They’re not in heavy people expansion mode every year.” That’s true, but ideally, management calibrates personnel decisions based on forward-looking assessments of the operating environment that turn out to be at least a semblance of accurate. If you have to fire 18,000 people, you probably screwed that up, even if that represents just 1% of your total workforce, as it does with Amazon.
Rather than just say that, Jassy resorted to corporate jargon — he regaled employees with an elevator pitch about “the importance of critical invention, problem-solving and simplification,” all of which “go into figuring out what matters most to customers.” Amazon, he said, has to “adjust” where it spends “resources and time” in order to “do more for customers at a lower cost.”
Jassy, by his own account, talks to Jeff Bezos pretty much every day. I have to wonder if some of those chats might be getting more difficult. I’d argue it’s just not working.
To be absolutely clear: Revenue and top-line growth were destined to slow following the pandemic boom, so there’s a very real sense in which Jassy was set up for “failure,” with the scare quotes to denote that I don’t know what counts as “failure” in Bezos’s eyes.
Just as Amazon isn’t alone among tech giants (and it’s still fair to characterize the company as a tech giant, although it’s arguably more important as a consumer bellwether) in cutting jobs, it’s not alone in seeing revenue growth decelerate sharply, or in suffering a dramatic decline in its stock price. There’s a burgeoning cottage industry in analysis centered on the notion that US mega-tech names aren’t growth stocks anymore. If that’s true, it has existential implications for US exceptionalism in the corporate context.
It’s worth noting that Amazon’s staff cuts were originally expected to number just ~10,000. So, although 18,000 isn’t large in the context of the company’s total headcount, it’s a lot more than investors expected, it’s the largest staff cut in the company’s history and, as Bloomberg helpfully pointed out, it “would be the biggest cut yet for tech companies during the current slowdown.”
I’d be remiss not to note that Jassy is also grappling with reinvigorated union activity in the US, and not everyone seems convinced he’s doing the best job of it.
Amazon’s efforts to cut costs and otherwise bolster the company in the face of slower demand are also manifesting in cringeworthy punchlines. For example, Jassy is reportedly trying to market space on the company’s cargo planes and one idea is to “fill empty jets returning from Hawaii and Alaska with pineapples and salmon.”
At the end of the day, this is all Jassy’s responsibility. It isn’t obvious (to this observer, anyway) that he’s up to the task. Blaming macro conditions only gets you so far, and petty behavior like scolding “teammates” for press leaks suggests a lack of focus. Jassy needs to own what, increasingly, looks like a train wreck. If he’s not willing to do that, it might be better for Amazon to just bring back Bezos and send Jassy back to AWS where, I’d add, sales were short of estimates last quarter.
I think it’s a little unfair to expect Jassy to “admit” he got it wrong. Yeah he over-hired, kudos to Zuckerburg for finally admitting he got something wrong. Honestly, I’d rather that he own up to messing with mental health and American democracy more than over-hiring. Seems like an easy out for him. Every company over hired during the pandemic and we’re going to continue seeing cuts as a result of that over-hiring across many industries. I don’t expect every CEO to come out and publicly acknowledge that they messed up. Everyone did it during 2004-2008 and they did it again with the pandemic bubble, seems like it’s becoming a pattern. Stimulus shows up and everyone hires like crazy, tightening returns and they realize they went too far. It’s more indicative of the short sighted view humans have than an indication of bad leadership.
You think it’s “unfair” for investors in one of the world’s most important companies to expect the CEO to take ownership of mistakes? Sorry, I’m not prepared to accept that and, frankly, no serious investors should be. That’s not how this works. When stuff goes wrong, it’s your fault. Even when it’s not. That’s why you get paid 300 times what your employees are paid.
Okay, I’ll give you that, he should apologize to investors. I took your sentiment as he owes the employees he’s about to layoff an apology. But as an investor (I’m not in Amazon) I would rather that he retro the problem and come back with decisive conclusions about what went wrong and how they are going to ensure this doesn’t happen again. That’s taking actionable accountability vs. throwing out a meaningless apology. To counter this argument though, as an investor, it’s our responsibility (to ourselves) to foresee the outcome that is currently happening before it comes to fruition and vote with our dollars. Looking at Amazon, it seemed pretty clear to me they were not operationally sound without the infusion of near free lending. I would never rely on a CEO to do my diligence for me.
If you are reading this article on June 18, 2021 as a tech CEO would you decide “yep demand is going to drop off a cliff in 2022 better stop all hiring?”
https://www.reuters.com/business/exclusive-feds-kashkari-opposed-rate-hikes-least-through-2023-2021-06-18/
Don’t CEO’s earn 300 times the average salary because they are expected to be able to determine what the future will hold for their company and stay ahead of it? If anyone can just read a Fed opinion on the future state and call it good, then their salaries are definitely not justified.
When stuff goes wrong its definitely the fault of leadership – I struggle to understand what the response would have been to tech CEOs though if in the summer of 2021 they had said “we are significantly slowing hiring as we believe inflation is a problem and the Fed will have to raise rates to combat it” when the Fed was specifically saying at that time they wouldn’t? Would everyone have praised tech CEOs as leaders and accountable and visionary then?
The response at the time would have been negative. In hindsight, it would have looked genius and that CEO would be writing a book on how amazing they are as a leader because they saw what was coming and ensured their company stayed operationally sound during a protracted stagflation recession.
The same can be said of David Solomon’s leadership at Goldman and he’s not owning any of it.
Where is Janet Yellen’s and Neel Kashkari’s “ownership of it”?
Bad timing, Erik:
https://medium.com/@neelkashkari/why-we-missed-on-inflation-and-implications-for-monetary-policy-going-forward-fcd157e2ffcf
I read this and am sympathetic to what he is experiencing, but there is no mention of “hey sorry we blew an epic stock market and real estate market bubble and convinced all of you that rates were going to stay low for a long time”.
Yeah, but I mean Erik, the whole “central bankers are responsible for giant financial asset bubbles and thereby inequality and they should all be ashamed of themselves and apologize” narrative is damn near 30 years old by now. I don’t know how old you are (maybe you’re 70, and I’m not telling you anything you don’t already know), but every five years or so a new generation of market participants discovers this and runs to the rooftops to shout about it.
That’s great as it suggests widespread awareness, but it’s nothing new. It’s just the way of the world. It’s never going to change. Breathlessly lamenting it is pointless. I do it when I have to, but on some days it’s tiresome.
This is why I (literally) fell asleep the other night trying to read Nomi Prins’s laughably bad “Permanent Distortion.” It’s just the same thing every time: Pretending to be surprised by dynamics that’ve defined our reality since the late 80s. Yes, policymakers obviously took things to an entirely new level in the aftermath of the financial crisis, but the (often implicit, sometimes explicit, depending on the source) notion that it’s a nefarious conspiracy is overwrought.
I’d also note that a lot of that sort of editorializing is purely for the purposes of stoking public outrage and then monetizing it. Most of the people who write about these dynamics (i.e., the central bank-bubble-inequality nexus) are themselves hugely rich and have figured out that the easiest way to get even richer is to pretend to be angry about the dynamics that got them rich in the first place. It’s a cynical charade that plays out on finance twitter and bear blogs every, single day. It’s very disingenuous and highly pernicious.
Obviously, I don’t want to downplay the extent to which monetary policy (and particularly post-GFC monetary policy) has contributed to inequality and the rise of populism across Western democracies. Any regular reader knows I’ve written voluminously on the subject over the years. What vexes me is that I’ve seen, with my own two eyes, people leave jobs in finance and government to turn around and make millions parroting their version of the “blame central banks” narrative. Rarely are such “career” choices the result of introspection. More often, it’s pure profiteering by folks who know that their expertise will allow them to prey on (i.e., monetize) disaffection among a public which doesn’t know much about policy and high finance. Ironically (and intentionally), that kind of profiteering does more to stoke division than central banks ever could. It’s everywhere and always pitched as a kind of “I’m Morpheus, take this red pill and you’ll know the truth” offer, but in reality it’s just “Here’s some hysteria about central banks I wrote, if you’ll be so kind as to click on it, I’ll be able to buy the latest Jaguar coupe.” (And yes, that’s a real example — I personally know someone who buys Jaguar coupes with money made from central bank-bashing click bait.)
Much of the company’s over-expansion was probably baked in by Bezos. 1.1% is not much of a RIF; more to come. I don’t think investors will turn on Jassy for RIFs, unless they judge he’s not RIFing fast/hard enough. AMZN’s stock price implies that more substantial RIFs are expected. You can’t reasonably get to EPS or FCF that even arguably supports the current valuation, without expense reductions that require well more than a one percent headcount cut.
For what it is worth, I’m assuming 4% RIF or about 70K.
It is ironic that we are having a discussion about a CEO when the same point could be argued on monetary policy as well. Where is the apology from Neel Kashkari, Janet Yellen, Mary Daly, or Lael Brainard that they “got it wrong”? Have they taken a pay cut or been removed from their roles? Have they issued a press release that they “got it wrong”? The irony is all through 2021 everyone was stating inflation was transitory and the Fed shouldn’t try to hurt employment with interest rate hikes – now that CEOs have to react (belatedly) to this fact we are sitting here arguing it is CEOs fault for holding on to employees for too long?
Erik, While I’m sympathetic to the general thrust of your arguments, all of the people you mentioned have in fact said repeatedly that they screwed up on inflation. There are too many examples of such admissions to plausibly list here, but the linked blog post I included in another reply to you in this comment section is one example. Kashkari apologized again just yesterday, and went into extraordinary detail as to what might’ve gone wrong. Also, find me a government official of any kind whose pay is 300 times that of the average government bureaucrat. (Don’t waste your time. You won’t find one).
I get the gist of the pay side of things as being a major factor in what you are saying, and I have seen them say they screwed up – what I don’t get is why Jassy and other CEOs must apologize and “go” (since somehow they created the problem by overhearing) but Kashkari, Daly, Brainerd and others who got it so wrong should just say sorry, stay in their roles, and be trusted to fix a problem that they created.
I just want to say that I enjoyed this discussion and found it enlightening. Thanks to H and the Commenters!
If I’ve learned anything here it’s that managing, investment, economics and the Fed are mainly about problem solving. There is never a ‘no problem’ state. I believe this has already been stated here, but I’ll reiterate; as an investor it gives me more confidence when a CEO takes ownership of a problem because then they are more likely to fix it.
I’m late to the party but if Jassy thinks a 28 year old company is old and allowed mistakes hasn’t paid much attention. Deere & Co was founded in the 1830s! So was Martin Guitars. Both were family- owned/run companies for generations, as Ford still is after more than 100 years. Now these guys actually have been around “for a while.” They have undoubtedly made some mistakes but they have also had to adapt to merciless changes in their environments and survived. There is a pub in Ireland that has been continuously open on the same site for roughly 1000 years, thew oldest business in the world. I’ll bet they made a few mistakes as well. Oxford University and its slightly younger competitor, as it were, have been doing what they do for a thousand years as well and are generally considered to be successful. All I can say is that recency bias is all too common in today’s world. I just saw an ad on the History Channel for a new show where Peyton Manning is going to reveal all the GOATs for everything. Wow, what an event. I wonder if any of those supposed bests will be from a earlier period than the 1960s?
+1
This should come as no surprise to any investor…I’ve been banging the AMZN bearish drum for a year because our Power Gauge 20 factor model has been bearish…but don’t believe the model..here’s what Jeff Bezos said in November of 2018
“Amazon is not too big to fail,” Bezos said, in a recording of the meeting that CNBC has heard. “In fact, I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.”