Amazon (AMZN +1.10%) hired roughly 500,000 new employees last year as the coronavirus pandemic led to a major surge in online shopping. But if you thought 1.3 million employees would be enough to handle the kind of volume Amazon expects in 2021, you'd be mistaken. The online retail giant is hoping to hire another 75,000 new employees to help operate its growing logistics network.
That will increase Amazon's U.S. workforce by about 8%. It also indicates that management is returning its focus to the task of getting packages to customers as quickly as possible.
Keeping its one-day delivery promise
Before the pandemic, one of Amazon's main priorities was speeding up its operations so that it could deliver more products to customers within one day of their being ordered. But when the crisis hit, its warehouses became a bottleneck.
Image source: Amazon.
"It wasn't that we were delaying or slowing down the shipment itself, it was the time taken to get through the warehouse and handle the backlog of demand," CFO Brian Olsavsky told analysts during Amazon's fourth-quarter earnings call back in February.
Amazon expanded its fulfillment network footprint by 50% last year. Hiring kept up with that expansion, as its workforce grew by more than 60%. But the company is not ready to hit pause yet. "We are continuing to invest, and we'll see a large investment in this area through 2021 as well," Olsavsky said on the company's first-quarter earnings call in late April. As a result, Amazon will need a lot more workers to staff its warehouses and fulfillment centers.
While the capacity issues that led to last year's bottlenecks have mostly been resolved, the company's plans imply that it expects continued strong sales growth. Further, it still has work to do to reach its goals on one-day delivery.
Amazon's outlook for the second quarter calls for sales growth of 27% at the midpoint. Additionally, it plans to hold its annual Prime Day event in June, and it will need additional capacity to handle the surge of orders associated with the shopping holiday it created.
Long-term hiring
Prime Day will land near the midpoint of the year, but investors shouldn't expect the company's hiring rate to slow in the second half. As mentioned, it is continuing to build out its logistics network so that it can handle the delivery of more packages in-house, rather than handing them off to third-party couriers.
Doing that will allow Amazon to expand the order windows eligible for one- or two-day delivery. And as it adds more capacity to move packages around the country, product selection for one-day shipping should expand greatly.
The 75,000 new jobs it just announced will mostly be in its warehouses and sortation centers. But Amazon also has plans to add more distribution centers to its network, and it's opening a massive air hub in Kentucky. Those sites will need workers too.
All of this hiring and building will have a big impact on cash flow and operating margins for the retailer. Not only does it have to make big capital expenditures to open new fulfillment network locations, Amazon is also ramping up hiring to bring those new sortation centers, distribution centers, and warehouses up to speed as quickly as possible. Those are big operating expenses.
The good news for shareholders is that Amazon's hiring is an indication that it'll have plenty of demand to meet. In 2020, when Amazon spent big on new hires and expanding its fulfillment network -- plus billions of dollars in COVID-related expenses -- operating margin still made a big jump to 5.9% due to high demand. And margin expanded to 8.2% in the first quarter of 2021.
Amazon has demonstrated that if demand is strong enough, it can spend heavily and become more profitable simultaneously. Expect more of the same this year.
