Amazon is growing on-demand services after reporting a 20% sales increase in 2015.
Amazon.com is closing a Georgia distribution center and looking to make all its product offerings contribute to the profitability goal.
The biggest kid on the Internet block is heeding the adage: “The bigger they are, the harder they fall.” Amazon.com says it plans to show operating profit in the fourth quarter. And it began trimming fat in hopes of delivering on that promise. But analysts believe more dieting will be necessary.
Part of Amazon’s slimming exercise included closing its McDonough, Ga., distribution center, beginning in February. That closing will result in 1,300 layoffs, 15% of its workforce. It also is looking at ways to offer products so each contributes to profitability. Amazon says this does not mean it will be cutting its offering. Rather it will be looking at options such as third-party deals, which could reduce what Amazon stocks and ships, and increasing the minimum order size. Amazon believes it is on the right track. “From our U.S. business, only 2% of sales were a loss in Q4,” a spokesman says. “We are very close to profitability.”
Kristine Koerber, senior retail analyst with WR Hambrecht & Co., says Amazon could show operating profit in Q4. However, she expects Amazon will again show losses for at least two quarters after that. “The fourth quarter will be its biggest of the year, and the profits will only be slightly above breakeven,” she says. The real issue is can Amazon show long-term earnings growth, especially with sales growth slowing to 20% to 30% while Hambrecht estimates it needs 35% to 40%. “We won’t see (sustained) profitability this year or next,” she says.