retail news in context, analysis with attitude

Bloomberg has a piece in which it suggests that Amazon's current situation - having overbuilt and over-hired during the pandemic, it now is pulling back on both fronts, looking to stabilize its business and numbers - is "probably the best leading indicator you can get that general inflationary pressures in the economy should begin easing over the next couple of quarters."  Amazon, the story suggests, "is a great bellwether for changes in macroeconomic trends because of its sheer size and the consistency of the company's growth and evolution."

The analysis notes that "if you want to blame one company for the surge in inflation over the past year, blame Amazon. When e-commerce demand leaped at the onset of the pandemic in 2020, the retailer decided to expand capacity to meet higher growth forecasts. Then, when the labor market started tightening a year ago, Amazon pressed ahead, paying whatever it took to build more fulfillment centers, buy more trucks, and hire more drivers and distribution center workers … Because Amazon is so large, any effort to expand quickly is going to hurt its profit margins and push up prices in the supply chain. Slowing those ambitions should both improve Amazon's profit and lead to less inflationary pressure economy-wide."

Bloomberg also offers a metaphor:

"Inflation works kind of like freeway traffic. When you drive your car onto a road to go where you need to go at the same time a bunch of other cars are heading in the same direction, all those cars create traffic that blocks your progress. And every car views all the other cars as obstacles to their own progress. But if you and a lot of those other cars just stayed home instead, there wouldn't be any traffic slowdowns."

For the moment, in this scenario, Amazon is staying home, which ought to eliminate at least some of the traffic jams.

KC's View:

So, essentially we are in "when Amazon sneezes, everybody gets a cold" territory.

The interesting challenge for Amazon, it seems to me, will be tempering its expenditures and focusing on efficiency in a culture that largely has depended on a full-speed-ahead approach to innovation.  Not only is it usually out on the freeway, but also is lapping the competition.

I think it is really important for its competition to continue the pace of innovation that they achieved during the pandemic.  The economy may be in flux, but that doesn't mean that people's needs and aspirations are going into some sort of stasis.  Far from it.