The news: “Change is always around the corner,” writes Amazon CEO Andy Jassy, noting that companies that respond to challenges, such as the current macroeconomic environment, position themselves well for long-term growth.
- That mentality drove Amazon to embark on an array of cost-cutting measures, including shuttering several physical store concepts, and laying off roughly 27,000 roles.
- But those steps should help it pursue key growth areas such as advertising, retail, and grocery.
Growing its advertising business: While large advertising-focused businesses (such as Meta) have seen growth slow over the last few quarters, Amazon’s business continues to thrive (it was up 25% year-over-year in 2022), Jassy noted.
The business benefits from Amazon’s massive scale. Given Amazon’s significant ad load, many brands feel pressured to pay for ads to ensure shoppers can find their products.
Improving fulfillment: The pandemic drove Amazon to double the size of its fulfillment center footprint and accelerate its building of a last-mile transportation network.
- But that rapid expansion required optimization, which it has since embarked on by pivoting it away from a national network to a regional model to cut down costs and delivery times, Jassy wrote.
Meeting customers’ grocery needs: While Amazon has a significant grocery business, Jassy acknowledged the company has yet to find the right scalable model.
- It recognizes the need to expand its physical footprint, given that the vast majority of grocery sales occur offline. (Our US Grocery Retail Ecommerce Sales forecast suggests 88% of sales will be offline this year.)
Whole Foods Market is on an “encouraging path” but Amazon needs to “find a mass grocery format that we believe is worth expanding broadly,” Jassy wrote, suggesting that its Amazon Fresh expansion pause may be permanent.
The big takeaway: Like many large companies, the current economic environment is forcing Amazon to make tough choices.
- Jassy aims to reassure investors that Amazon is making the necessary adjustments to position it for strong growth ahead.