One of the common themes throughout the pandemic was the shortage of labor. After an initial wave of layoffs, many stayed home and shunned opportunities to get back into the workforce for a variety of reasons.
But several companies have added workers since the end of 2019. For them, business boomed and they expanded accordingly. One stands out above the rest. Amazon (AMZN 1.84%) actually doubled the number of employees over the past two years. It helped the company meet unprecedented demand, but now its shareholders are paying the price. Does that make it time to sell the stock or be patient as e-commerce growth catches up to the added capacity?
Getting back to normal
Although job growth has been robust, the country still hasn't recovered the 22 million jobs it lost at the onset of the pandemic. We still need to create 1.2 million to fill the gap. That should happen by July at the current pace. Six states are already back to pre-pandemic levels. And the number of job openings remains at record levels. Overall, the labor market is very strong.
Not every segment of the economy feels the same
For obvious reasons, jobs in the accommodations and food services -- hotels and restaurants -- were hit hardest. They lost a combined 6.9 million jobs in March and April 2020. Opportunities were limited. Many moved to new industries. With the shift of consumer spending online, and the relative financial stability of multibillion dollar corporations, their destination was obvious in hindsight.
Big box retailers such as Walmart (WMT 0.11%) and Target (TGT -3.51%) offered steady hours and pandemic bonuses. Shippers UPS (UPS -0.51%) and FedEx (FDX 0.07%) were delivering more packages than ever. But one employer added an army of workers.
The most popular destination by far was Amazon. It doubled its workforce over the past two years. It was necessary. Revenue for both the North American and international retail segments grew about 70% over that span. COVID made predicting future demand difficult so management invested aggressively and built enough capacity to meet the high end of its estimate.
Too much capacity, for now
The boost served the company and its shareholders well. At one point last year, the stock was up 90% from the beginning of 2020. Now shares of Amazon are off 40% from that high.
CFO Brian Olsavsky said the company did a lot of hiring to backfill sick workers as coronavirus variants spread. It quickly became overstaffed as the variants subsided and all of its employees were healthy enough to return at once. The drop-off in productivity -- as measured by revenue per employee -- has been significant. But the issue should clear itself up over time.
One tailwind firmly at the company's back is the shift from brick-and-mortar stores to e-commerce. COVID-19 might have caused a temporary peak, but the long-term trend remains firmly in place. Its investments in the fulfillment network -- which cost it $2 billion in the first quarter and an estimated $4 billion in the current quarter -- will just reinforce its advantage of speedy delivery.
As for all of those extra employees, Olsavsky said recent trends point to improved productivity. He doesn't expect to get back to pre-pandemic levels in the next few quarters. But the overall excess capacity should be soaked up during its annual Prime Day sale in July and the ramp up heading into the holiday season. It should also be able to manage the workforce through a notoriously high attrition rate.
For Amazon shareholders, volatility shouldn't be anything new. The stock has fallen more than 25% four times in the past decade. Every time it has been a golden buying opportunity. I don't expect this time will be any different.
Editor's note: This article has been corrected to remove a sentence saying that Amazon management said it expected the growth to persist.