New York, Dusseldorf Amazon’s growth seems unstoppable. The world’s largest online retailer increased its sales by more than a fifth to $470 billion last year, and profits by half to more than $33 billion. Investors appreciate this development: After trading, the Amazon share price rose by 15 percent.
The corporate management has little time to celebrate. An employee survey to form an employee representation will start this Friday at the Amazon location in Alabama. The employees protest against the working conditions and demand higher wages. And many employees have already made their decision – and resigned. This threatens the basis of the success of the global corporation.
Labor shortages have given low-wage workers in the US confidence. In the second half of 2021, more than four million Americans quit their jobs every month — while companies were hiring an average of six million a month.
This also affects the business model of Amazon, which with 1.4 million employees is the second largest private employer in the USA after Walmart. In the trading group with its own logistics chain, it is a principle to regularly replace large parts of the workforce. Something like this helps to keep average salaries and thus costs low. And it complicates the formation of employee representatives, which the company dislikes.
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According to data from The New York Times, before the pandemic, Amazon rotated three percent of its hourly-paid employees weekly. However, it is now difficult to attract new employees. And those who want to stay are demanding more money and more rights. You want to benefit from the company’s success.
Amazon employees vote for employee representation
Amazon workers in New York’s Staten Island borough are already in a party mood: Led by the Amazon Labor Union (ALU) group, workers at a 5,000-worker warehouse this week raised enough votes to request the formation of a union. Christian Smalls is listening to the relief. “We did it after all,” says the initiator of ALU, happy about his recent success.
Smalls was fired from Amazon 21 months ago after organizing a protest at his warehouse demanding better protection against Covid. For months since then he has been handing out leaflets outside the gates of his former workplace to organize a union.
It would be the first time that the large corporation had to deal with organized employee representation in-house. But it probably wouldn’t be the last time. Not only in Alabama union supporters are currently collecting signatures, other locations want to follow. “I’ve been contacted by 18 different centers in 12 different states,” says Staten Island organizer Smalls.
“Like any company, we feel the macro trends,” admits an Amazon spokeswoman in the US with regard to the shortage of workers. When presenting the results, CEO Andy Jassy also spoke of “higher costs due to the shortage of workers”.
Our own logistics are the backbone of our success
“Amazon’s challenge in the fourth quarter was to build up enough human resources to meet the investments in order fulfillment,” observed retail expert Julian Skelly of consulting firm Publicis Sapient. The company “had to accept a significant drop in profits”.
In his recent letter to shareholders, company founder and former CEO Jeff Bezos promised to take better care of employees: “We always wanted to be the most customer-centric company in the world,” Bezos wrote. And now Amazon also wants to be “the best employer and safest place to work in the world”.
This turnaround is calculated, because Amazon hits the core of the workers’ uprising. “Having our own logistics not only makes Amazon independent, but also helps to scale faster thanks to greater flexibility,” explains Eva Stüber, member of the management board of the retail research institute IFH. Amazon’s growth could not have reached this level without its own delivery service for the marketplace traders, says the trade expert.
And the growth is unprecedented in the industry. Global sales have increased almost tenfold from $48 billion in 2011 to today. With 279 billion dollars, Amazon still makes most of it in the USA. But the group was also able to increase sales internationally. Last year, the share was 127 billion dollars.
The Amazon founder has also recognized that the company needs to take more care of the concerns of its employees.
(Photo: AP)
While the rapid growth was at the expense of profitability for many years, Amazon has long been in the black. The Amazon Web Service (AWS) cloud business makes a major contribution to this. With this profitable rental of server performance to other companies such as Adidas and Best Buy, investments in their own infrastructure can be cross-subsidized. The division delivered three quarters of the profit to the group profit last year, although it accounted for only 13 percent of the turnover with 62 billion.
In Germany, 50 percent of online trade is done via Amazon
In this way, the company can afford to constantly try out new ideas without the need for immediate profit. In addition to total customer focus, this culture of innovation is one of the key secrets of Amazon’s success, says Stüber: “The given is constantly being questioned and new products and services are being introduced – even those with which the company is initially cannibalizing itself.”
Also in Germany, Amazon has achieved a dominance that teaches the rest of the industry to fear. According to analyzes by the IFH, Amazon already accounted for more than 50 percent of German online trade in 2020. She speaks of the “Amazonization” of consumption.
>> Read here: Amazon’s head of technology, Werner Vogels, has these three innovations on his radar
In Germany, Amazon is also feeling resistance from employee representatives. The Verdi union, for example, regularly organizes strikes in the warehouses to force the company to conclude a collective agreement. However, she has not slowed down the US group.
With numerous measures, Germany boss Ralf Kleber has ensured in good time that there is no shortage of workers despite the rapid expansion of capacities. More than 20,000 permanent employees work for Amazon’s German infrastructure in 17 large logistics centers, some sorting centers and around 60 distribution centers. In the past 14 months, 4,000 new permanent jobs have been created there.
An important factor is that Amazon last year introduced an entry-level wage of twelve euros plus additional benefits “to set an example there, too,” as Kleber recently said in an interview with the Handelsblatt. “We offer entry opportunities and career opportunities for everyone,” he emphasized.
Amazon accommodates workers with higher wages
When Amazon puts new logistics locations into operation, like this year in Hof and Helmstedt, the company opens its own applicant offices in the inner cities. According to an Amazon spokesman, the company in Germany is feeling the shortage of skilled workers in particular in the technical professions and in IT. That is why the company is increasingly training itself and is expected to have 300 trainees and dual students in logistics by the end of 2022.
In the USA, too, the group has now understood that it has to offer its employees more. In some regions, for example, Amazon pays bonuses of $3,000 when people sign an employment contract. Hourly wages have been raised to an average of $18 for entry. According to media reports, the company has also largely eliminated its so-called “pay to quit” program, which offered employees $5,000 after the holiday season to leave the company.
“Employee turnover is still extremely high at Amazon, despite the shortage of workers,” observes work sociologist Ruth Milkman of the City University of New York. However, the situation depends heavily on where the Amazon jobs are located. “The jobs in Alabama pay better than other local jobs,” she says, referring to the region’s structural weaknesses. It will be more difficult to recruit New Yorkers in Staten Island.
“Amazon has always been stubborn in its vision, but flexible in the details,” said Amazon Vice President Dharmesh Mehta recently at a conference in front of so-called marketplace dealers from the group’s network. And so Amazon will also have to find flexible solutions to the labor problem in order not to endanger its expansion machine even more.
Strategy consultant Brendan Witcher of Forrester Research believes in the company’s problem-solving ability: “Anyone who thinks Amazon has reached its zenith has not understood Amazon. Amazon always comes around the corner with something new.”
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