The Big Two see troubled waters ahead. So do I.


We’ve spoken often about the economic crisis in which we find ourselves.  Now comes news from Amazon and Walmart – probably the two largest retailers in the country – that both have overextended themselves, and will have to shed jobs and facilities to remain competitive.

Amazon announced that it’s planning to shed at least ten million square feet of warehouse space.  (Makes my new 400 sq. ft. utility shed look rather small by comparison!)  Bloomberg reports: Inc., stuck with too much warehouse capacity now that the surge in pandemic-era shopping has faded, is looking to sublet at least 10 million square feet of space and could vacate even more by ending leases with landlords, according to people familiar with the situation … The surfeit of space could far exceed 10 million square feet, two of the people said, with one saying it could be triple that. Another person close to the deliberations said a final estimate on the square footage to be vacated hasn’t been reached and that the figure remains in flux.

. . .

In a sign that Amazon is being careful not to cut too deeply should demand quickly rebound, the 10 million square feet the company is looking to sublet is roughly equivalent to about 12 of its largest fulfillment centers or about 5% of the square footage added during the pandemic. In another signal that Amazon is hedging its bets, some of the sublet terms would last just one or two years. 

. . .

Amazon spooked investors last month after reporting slowing growth and a weak profit outlook that it attributed to overbuilding during the pandemic when homebound shoppers stormed online. At the end of 2021, Amazon leased 370 million square feet of industrial space in its home market, twice as much as it had two years earlier. 

In the April earnings report, the company said it expected the excess space to contribute to $10 billion in extra costs in the first half of 2022. The company didn’t divulge how much over-capacity it had, where it was located or what it planned to do with it.

There’s more at the link.

This is pretty significant.  Amazon lives or dies by its ability to service its customers’ needs accurately and in the shortest possible shipping time.  It’s been caught up in a concertina-style ordering frenzy.  At the beginning of the pandemic, consumers who could no longer get to supermarkets (thanks to lockdowns) bought much more from Amazon and other online retailers.  Amazon “bulked up” to meet that demand, hiring tens of thousands more staff and opening warehouses all over the country:  but bricks-and-mortar retailers like Walmart were already doing the same, trying to make up through online sales what they were losing due to fewer shoppers in stores.  Walmart’s done particularly well at that:  I now order a lot more from them, finding their prices very competitive with Amazon, and their delivery from nearby stores even faster.

This also has major implications for the trucking and transportation industries.  Walmart already had a very well-established delivery network of its own, and used it ruthlessly to gain advantage and muscle in on Amazon’s operations, that were serviced by third-party operators such as UPS, FedEx, etc.  Amazon had seen this coming, and was already moving to bring more transport operations in-house (you’ve doubtless seen more Amazon-branded 18-wheelers on our major highways over the past year).  Now both companies have to accurately forecast demand, and tailor their transport networks accordingly:  and third-party vendors they’ve used in the past might find themselves holding the short end of the stick, because I’m sure the stores will give preference to their own transport operations (which have to cover their costs) over outside providers.

Last quarter Amazon’s financial results were dismal compared to previous periods.  The company is moving fast to contract, shedding “fat” in both warehouse space and personnel, but if it contracts too much or too sharply, it may not be able to meet its customers’ expectations, or respond quickly enough if the economy picks up again.  It’s a heck of a conundrum when you’re talking billions upon billions of dollars – literally.  (I’ve seen estimates that a single major Amazon fulfillment center contains goods worth up to one billion dollars – and the company operates hundreds of them.)

Walmart is responding in various ways, including converting space in over 100 of its bricks-and-mortar stores to serve as local fulfillment centers.  It’s also automating the operation of its 42 regional distribution centers, making them more efficient (and saving a bundle on staffing costs as well, let it be said – robots don’t need leave or sick leave, don’t take breaks, and don’t earn wages).  Once the process is complete, I expect Walmart’s online order processing to be at least as efficient as Amazon’s.

Both Amazon and Walmart are now talking openly about shedding staff.

Walmart CEO Doug McMillon said during the company’s quarterly earnings call Tuesday that the company experienced “weeks of overstaffing” during the first quarter of fiscal year 2023, primarily due to the pandemic.

Walmart had hired extra associates at the end of 2021 to cover for staff that was out on COVID leave, but when Omicron cases declined the first half of the quarter, employees came back to work sooner than expected. 

The overstaffing issue was resolved during the quarter, primarily through attrition, McMillon said. 

. . .

But Walmart isn’t the only retailer that ran into staffing challenges and elevated wage costs during the first few months of the year: Its primary US competition, Amazon, had the same issues. 

“As the [Omicron] variant subsided in the second half of the quarter and employees returned from leave, we quickly transitioned from being understaffed to being overstaffed, resulting in lower productivity,” Amazon Chief Financial Officer Brian Olsavsky said during the company’s first-quarter earnings call late last month. 

That reduced productivity added roughly $2 billion in costs for the company, Olsavsky said.

For Amazon in particular, it’s a major shift from previous years. The company has added hundreds of thousands of fulfillment-center jobs since the onset of the pandemic but has shed workers faster than it could hire them. A New York Times investigation last year found that hourly workers had a turnover rate of roughly 150% each year, leading some executives to worry about running out of people to hire.

Again, more at the link.

This has much wider economic implications.  Many towns no longer have smaller local stores, because Walmart (and, to a lesser extent, dollar stores) have driven them out of the market.  If a local Walmart scales back its operations, all those out of work as a result won’t be able to find other jobs, because the local economy is already under severe stress.  Amazon employs vast quantities of people, many of whom at the lower levels are now going to find their jobs under increasing pressure.  Again, if they’re laid off, the odds of them finding a replacement job right now are very, very poor.  That means all our neighborhoods will be under stress, from people who need help to eat or keep a roof over their heads, to rising crime as people with no alternative turn to anything that will keep body and soul together.  Large cities will be particularly prone to such problems.

If you, dear reader, are one of those whose job might be in jeopardy, or you rely for support on someone in that situation, you might want to re-evaluate your situation right now.  We’re all going to feel the consequences of these cutbacks.  Let’s do what we can to prepare for them before the full impact makes itself felt.



  1. " Inc., stuck with too much warehouse capacity now that the surge in pandemic-era shopping has faded"

    –unsaid is perhaps "now that inflation has outpaced wages and people have started to reduce spending due to a lack of funds…"

    This article is worth a look. —

    — I had trouble picturing all those retailers "overshooting" demand, but on re-reading, it's starting to make sense. Keep in mind that people are buying less because it costs more, and because they don't have the money, not JUST because habits have changed, and that the author is talking about 'non-core' buying. Food and energy buying continues, but it now takes an ever increasing portion of available funds, leaving less for the other purchases.

    FWIW in the Houston area they are building warehouses at an astonishing pace and in large numbers. Houston is growing like crazy though, and may not be a good proxy for the rest of the country.


  2. Amazon completed construction of a massive distribution center in Waco 6-8 months ago.
    Very little activity on site. No "Hiring Events." Just…crickets

  3. As Barron's was talking about the massive increase of personal credit card use in the last two months (+41% balances IIRC). Article mentioned about how some insane % of Americans who have nothing in the bank (comments about bank fees also jumping).

    Leads me to ponder since the Stimmy Checks are done maybe WE BE BROKE at street level.

    It's weird folks will chatter about anything but MONEY Issues but I know more than a few folks who spent every dime of the stimmy checks and lived high on the hog on new credit cards. Maybe the Piper needs paid?

    As I am a major people watcher and chat often with store workers I've noticed less in the baskets and less happy folks walking in Walmart-grocery stores and such. My chats with store personnel reenforces that folks are more stressed and less spending going on.

    Despite less spending prices are climbing (I keep receipts and compare weekly) and store stockage levels are less in amount and selection here in NH.

    Proverbs 25: 19Like a broken tooth or a foot out of joint is confidence in a faithless man in time of trouble.

    The economic storm is here.

  4. Additional data point, today I received the first NH Food bank begging letter I've ever seen and when I researched it, it's the first NH Food Bank public fund drive.

    Letter was very well written talking about how kids out of school are losing one of their main meals and that fuel costs are stressing family budgets.

    I normally donate cans to my local Food Bank, might have to up my game.

    Proverbs 19:16He who keeps a commandment preserves his soul, but he who is careless in his ways will die. 17Kindness to the poor is a loan to the LORD, and He will repay the lender. 18Discipline your son, for in that there is hope; do not be party to his death.…

    Luke 6:38
    Give, and it will be given to you. A good measure, pressed down, shaken together, and running over will be poured into your lap. For with the measure you use, it will be measured back to you."

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