Layoffs during the holidays are a cause for concern – as is the report by The New York Times, according to which Amazon intends to lay off 10,000 workers. This is a real cause for concern – one that should raise serious concerns about the future of the global economy. These days we are at the beginning of the strongest period in the American economy in particular and the global economy in general. The current quarter, that of the pre-Christmas shopping season, is often the strongest of the year for companies that sell products to consumers or those that record significant advertising revenue. The frenzy of shopping and gifts that characterizes the period translates into large revenues, with a distinct gap compared to other quarters. This is the quarter in which they make cash. This is the moment when everyone mobilizes to make sure that there is not a fraction of income that escapes. If Amazon chooses to lay off workers right now, it could be a worrying sign that the upcoming shopping season will be weaker than usual and perhaps a harbinger of a global recession.
In the case of Amazon, it is important to understand not only how many layoffs – but also who is laid off. According to the “New York Times”, the online trade giant is embarking on the largest layoff in the company’s 28-year history. However, despite the daunting absolute number (which itself is smaller than the number of employees that Meta laid off last week), it is only a small percentage of the approximately 1.54 million employees employed by the company, only 0.65%. Almost all of these employees are employees of the company’s warehouses and logistics systems. Those who are responsible for the physical side of Amazon’s activity – not the hardware, software and cloud services, but the collection of order details, their packaging and delivery to their final destination. To them must also be added a large number of couriers who are contractor employees, who are not subscribed to the number of company employees. Even if all the layoffs were from Amazon’s logistics system, the impact on its ability to deliver orders during this period was minimal.
The reality is that only a minority, if any, belong to this array. According to the New York Times, the cuts will encompass Amazon’s corporate operations and focus on the company’s devices division, including the voice assistant Alexa, as well as its retail and human resources divisions. The rate of layoffs is expected to stand at 3% of its corporate activity employees. This is a significant rate but much less dramatic compared to the meta.
The layoffs do not herald a weak shopping season in the wake of a recession, but they are another manifestation of the increasing economic difficulties and especially the problematic situation in which technology companies, especially the giants, find themselves. Amazon, perhaps even more than the others, especially benefited from a strong growth in demand for its services during the Corona period. During the long closing weeks, when it seemed that every step out of the house was a life-threatening situation, Amazon became an essential service, especially in the US and other countries where it has extensive local operations. The ability to easily order any product and receive it quickly turned from a nice service to a necessary product. And Amazon, at the beginning of the pandemic, had difficulty To meet the demand, it hastened to grow its operations on a dramatic scale.The 1.5 million workers that the company employs today are mainly a result of this growth.
But Amazon’s growth, like that of other technology companies, has come to a screeching halt in recent quarters – a result of a return to the pre-Corona routine on the one hand and economic pressures on the other. In the second quarter of the year, it was the slowest in about two decades. In the third quarter, the situation improved, but barely, but Amazon also warned against a possible further weakening. The markets responded accordingly, and last week Amazon earned the dubious honor of being the first company in history to lose more than a trillion dollars in market value. Even if the situation is not as tragic as the investors’ panic suggests (in the third quarter it still recorded revenues of 127.1 billion dollars and a net profit of 2.87 billion dollars, not exactly negligible amounts) the reaction of the markets to the financial data cannot be ignored.
Accordingly, the expected layoffs at Amazon are focused on reducing expenses, while avoiding damage to profitable activities or those on which the company’s current revenues rely. The layoffs in the device division could symbolize Amazon’s decision to reduce development activity for unpopular devices and limit the scope of devices it launches. When Amazon launched new devices this fall, the lineup was more limited and less pretentious than before (there was, for example, no sticky note printer or a thousand-dollar home robot). There are questions about the operation of the Alexa-based smart speakers, which Amazon says have particularly low profit margins as they are supposed to serve as a portal to further purchases from the company.
The cuts in the retail division probably reflect the significant slowdown in growth, and as a result the decrease in the need for employees at the corporate level to open additional logistics centers. Similarly, if there are layoffs and no mass recruitments, the need for personnel workers also decreases significantly.
During the Corona, Amazon made the same mistakes that Meta did: growing too fast while expecting the trends that arose during the Corona period to continue for a long time. Reality did not behave according to expectations, and now Amazon, like Meta, is responding with cuts and belt tightening moves. Amazon and Meta were not the only ones to make this mistake. Which means that they probably won’t be the only ones to resort to such moves either. The question is not whether there will be another tech giant to follow in their footsteps, but who will be next.