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Amazon Delivers Some Bad News for the Economy


Amazon has delayed or scrapped a number of warehouse plans across the country.

For several decades, Amazon  (AMZN) – Get Inc. Report operated on a model of unfettered growth. Since coming onto the scene in 1994, the e-commerce giant has continued expanding to not only push out many independent retailers but singlehandedly take up 45% of the American e-commerce market.

Periods of skyrocketing growth are very often followed with, if not a crash, then at least a slowdown. Over the last year, Amazon has struggled with things like retaining employees and a growing push for unionization among workers.

But some trouble has also overestimated just how much the online ordering boon that came amid the pandemic would last.

Overestimating Demand

Back in April, Amazon posted its first quarterly loss in almost seven years while Chief Finance Officer Brian Olsavsky said that the company overestimated how many warehouses were needed.

“We’ve brought down our build expectations,” Olsavky told investors and analysts in the call. “Note again that many of the build decisions were made 18 to 24 months ago, so there are limitations on what we can adjust midyear.”

A recent report by RetailDive found that Amazon did not open at least 13 warehouses that it had planned to open across the country in the last year.

Some were delayed temporarily, others were delayed indefinitely while still others were permanently scrapped.

These include a 2.8-million-square-foot warehouse in Salinas, Calif., that was completely scrapped anda fulfillment center in South Dakota’s Sioux Falls whose opening date was pushed back from 2022 to 2024.

What Do Warehouse Cancellation Mean For the Economy?

Each cancellation spells a somewhat different story. Sometimes supply chains make it difficult to bring the necessary building materials in time while in other cases Amazon deemed there to simply not be enough need to justify another warehouse.

“It is common for developments of this size to have situations that impact their timeline along the way,” a local city chamber of commerce in Davenport, N.D., said of delayed warehouse plans in their city. “It’s our understanding that Amazon is experiencing supply chain issues, just like many of our local employers are experiencing.”

The signs, however, point that the boon experienced during the early days of the pandemic may finally be coming to an end (remember ordering everything from fruit and wine to covid tests online to avoid an extra trip outside?) 

Amazon shares have dropped over 36% in the last year while stock of e-commerce retailers Etsy  (ETSY) – Get Etsy Inc. Report, Shopify  (SHOP) – Get Shopify Inc. Class A Subordinate Report and Wayfair  (W) – Get Wayfair Inc. Class A Report has all experienced even more dramatic drops.

Mark Mahaney, an Evercore ISI analyst, who was known for putting his bets on Amazon also recently cut his price target on the company’s stock.

Where Do We Go from Here?

According to research from the International Monetary Fund, e-commerce went from taking up 10.3% of total global spending in 2019 to 14.9% at the height of the pandemic in 2020 before falling again to 12.2% in 2021.

This does not mean that everyone abandoned online sales and went right back to the stores, but, in Amazon’s case, moderate stabilization can lead to the kind of overestimating that led the company somewhat astray during the pandemic’s tail-end.

“The share of online spending rose and fell most dramatically in those economies and sectors where e-commerce was already thriving before the pandemic,” wrote researchers Joel Alcedo and Alberto Cavallo.

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