The founder of Amazon and arguably the biggest individual influence on modern retail will officially step away from his post later this year.
Amazon CEO Jeff Bezos, who founded the e-commerce behemoth in 1994, will transition to the role of executive chair in the third quarter of 2021, passing the chief executive role to Andy Jassy, who currently serves as CEO of the Amazon Web Services (AWS) cloud computing business.
“Amazon is what it is because of invention. We do crazy things together and then make them normal. We pioneered customer reviews, 1-Click, personalized recommendations, Prime’s insanely-fast shipping, Just Walk Out shopping, the Climate Pledge, Kindle, Alexa, marketplace, infrastructure cloud computing, Career Choice, and much more,” Bezos said in a statement to company employees. “If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive.”
The list of accomplishments Bezos rattled off was a product of his laser focus on “customer obsession,” No. 1 on Amazon’s current 14 leadership principles, which is summed up on the company’s jobs page: “Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.”
Those principles also include pushing short-term results aside for owning long-term success, hiring and developing the best talent, insisting on the highest standards for products, services and processes and valuing calculated risk taking.
Under Bezos’ tenure, Amazon transformed from an online bookstore that managed to not only survive an industrywide “dot-com bubble” that burst at the turn of the century, but grow beyond the comprehension of any of its retail contemporaries as it entered virtually every product category.
In February 2005, Amazon gave itself its biggest advantage yet with the launch of the Prime subscription memberships service at the initial price point of $79 a year, offering unlimited two-day delivery on over 1 million in-stock items. At the time, e-commerce shipping was still far behind in speed and cost, giving Amazon a significant edge over any other player in retail.
One year later, the e-commerce giant launched Fulfilled by Amazon (FBA), allowing sellers to send their products to Amazon’s fulfillment centers, which would take care of both storing and shipping to customers. These products then become eligible for Amazon Prime, thus growing the available assortment and selection for customers.
Amazon was even able to create its own shopping holiday with the launch of Prime Day in 2015, effectively forcing other major retailers to adapt their entire merchandising and shipping schedules around the event.
Bezos’ focus on long-term success helped Amazon succeed as a public company even as its investments into areas such as delivery and fulfillment hindered the company’s income. Amazon didn’t make its first profit until the fourth quarter of 2001, and didn’t have its first profitable year until 2003.
But as more consumers continued to shop online in the following two decades, profits became more consistent. And once e-commerce became the established norm, Amazon saw exponential profit growth, breaking $500 million in profit in a single quarter by 2016. That number now seems minuscule for Amazon, which reported that the 2020 holiday quarter brought in net income of $7.2 billion.
In January 2020, Amazon surpassed a $1 trillion market cap under Bezos’ leadership. The rapid consumer shift attributed to the Covid-19 pandemic nearly doubled that, with the company worth more than $1.6 trillion as of Tuesday.
Only Bezos’ stepping down could distract from the news of another blowout quarter for Amazon, capping off a year that saw the e-commerce giant take an even larger role in the retail ecosystem as “nonessential” stores shuttered throughout the world at the beginning of the Covid-19 pandemic.
Net sales for Amazon’s holiday quarter smashed record totals at $125.6 billion, well surpassing the $100 billion sales mark for the first time. This represented an increase of 44 percent over the $87.4 billion generated in the fourth quarter of 2019.
The $7.2 billion in quarterly net income amounted to $14.09 per diluted share, more than doubling the net income of $3.3 billion, or $6.47 per diluted share in the year ago period. Operating income increased to $6.9 billion, up from the $3.9 billion earned in the fourth quarter of 2019.
For the full year, Amazon took in net income of $21.3 billion, yet again nearly doubling 2019 profits.
In another testament to how well Bezos’ long-term plans played out, Amazon now has free cash flow of $31 billion to end 2020, compared with $25.8 billion for the trailing twelve months.
The cash flow number is even more impressive when taking into account that Amazon spent a whopping $21.5 billion in shipping costs in the recent quarter, a 67 percent increase from last year’s totals. This marks yet another spending record in this category for Amazon, which spent $15 billion in shipping costs in the third quarter.
Last year, Amazon increased square footage across its fulfillment and logistics network by 50 percent, dedicated 60 percent of fulfillment center capacity to seller products, and postponed annual selling fee adjustments until June 2021.
Bezos noted that he will focus on “new products and early initiatives” in his new role.
Revenue at Jassy’s division, AWS, climbed 28 percent to $12.7 billion from $9.95 billion a year earlier, below the $12.8 billion consensus estimate among analysts polled by FactSet, but still representing the largest dollar growth for the segment year over year. Revenue from the cloud computing service represented 10 percent of Amazon’s total sales, and crossed $51 billion for the full year.
Jassy has been a member of the AWS team since its inception and has worked at Amazon since 1997.
A major question for Jassy will be how he handles the antitrust concerns levied by the U.S. government once he takes the reins in his new role. In October, after a 16-month investigation into competitive practices at big tech companies, the House Judiciary subcommittee on antitrust concluded that Amazon, Apple, Facebook and Google enjoy monopoly power. Amazon is also facing antitrust complaints in the E.U.
Amazon’s announcement marks the second major executive transition at the company in the past year. In August, Jeff Wilke, the chief executive of Amazon’s consumer business, said he planned to retire early this year after more than two decades with the company.
Bezos said he will stay engaged in Amazon projects but will also have more time to focus on the Bezos Earth Fund, his Blue Origin spaceship company, The Washington Post and the Amazon Day 1 Fund.
For now, Bezos has two quarters remaining until his transition. Despite the uncertainty stemming from the pandemic, Amazon laid out guidance for the first quarter of 2021, anticipating net sales to be between $100 billion and $106 billion, or to grow between 33 percent and 40 percent compared with first quarter 2020. Additionally, the company expects operating income to be between $3 billion and $6.5 billion, compared with $4 billion generated in the first quarter of 2020.
The guidance assumes no additional business acquisitions, investments, restructurings or legal settlements are concluded. For the first quarter, Amazon expects approximately $2 billion of costs related to Covid-19. The company spent nearly $11.5 billion in Covid-related production and employee safety costs in 2020.
The e-commerce giant says it is continuing these investments by ramping up its in-house Covid-19 testing program. More than 700 employees are now tested every hour, and Amazon’s dedicated Covid-19 labs have processed more than 1 million tests globally. Amazon says it is working to ensure that its front-line employees receive vaccines as soon as possible.
Amazon’s fruitful 2020 holiday season also brought in a windfall for independent businesses selling on the platform, with worldwide sales growing over 50 percent compared to the same period in 2019. Sellers surpassed $4.8 billion in worldwide sales from Black Friday through Cyber Monday, growing approximately 60 percent from the previous year.
During the holiday season as a whole, small and medium-sized businesses in the U.S. sold nearly 1 billion products on Amazon.
Indian court halts Reliance-Future deal after Amazon’s petition
In the wake of the news of Bezos’ anticipated departure, Amazon may have just gotten the win it needs to further expand its influence in India after all.
A Delhi high court struck a major blow to the proposed megamerger of Indian retail giants by blocking a $3.4 billion deal that would have seen Reliance Retail, the largest retail operator in India with 12,200 stores, acquire the retail, logistics and warehouse operations from Future Group, which operates 1,800 brick-and-mortar stores under the Big Bazaar, Central and Foodhall banners.
Future Group would likely appeal against the court’s decision, a Reuters report said, meaning this tussle is not quite over yet. The conglomerate has said it could face liquidation if the deal falls through.
Last week, Amazon petitioned the high court to block a $3.4 billion deal that would have seen Reliance Retail, the largest retail operator in India with 12,200 stores, acquire the retail, logistics and warehouse operations from Future Group, which operates 1,800 brick-and-mortar stores under the Big Bazaar, Central and Foodhall banners.
Amazon’s petition stems from its minority ownership in Future Group’s Future Retail Limited (FRL), with the e-commerce giant alleging that its initial $200 million investment in the company included clauses saying the Indian group couldn’t sell its retail assets to anyone on a “restricted persons” list including Reliance Industries CEO Mukesh Ambani, India’s richest person.
The kicker here is that the deal specified that any disputes would be arbitrated under Singapore International Arbitration Centre rules. On Oct. 25, Amazon won an injunction from a Singaporean arbitrator that would prevent FRL from selling the businesses to Reliance.
Yet despite the injunction, which would appear to end the sale entirely, FRL argued that the arbitrator’s order was not enforceable under Indian law and needed to be ratified by an Indian court. The Competition Commission of India (CCI) followed suit on FRL’s claim by approving the deal in November, with India’s BSE and NSE stock exchanges also giving their go-ahead.
Justice J. R. Midha of the Delhi high court said on Tuesday that an immediate order was necessary to protect the U.S. company’s rights, adding that the arbitrator had “rightly proceeded” against Future.
Justice Midha directed a federal government counsel to relay the court’s decision to all authorities who were involved in reviewing the Future-Reliance deal. Future had acted “in violation” of the arbitrator’s order, he added.
There has been no word of whether Amazon’s urging for the court to detain Future Group CEO Kishore Biyani and other company founders has held up as part of the violation.
“Amazon is playing the dog in the manger, going all out to create a ruckus through a concerted and coordinated media campaign, primarily fueled by leaking of selective and misleading information to misguide media,” Biyani said in a letter to Future Group employees.
Future has accused Amazon of blocking its deal in an attempt to thwart any competition from Reliance, which has plans to expand into e-commerce. A physical network of nearly 14,000 stores, alongside the growth of its recently launched JioMart e-commerce operation, would certainly benefit Reliance against a company like Amazon.
JioMart, which is live in 200 cities across India, processed an average of 500,000 orders per day in December, according to Jio Platforms CEO Kiran Thomas. Jio Platforms, the subsidiary of Reliance Industries, secured a combined $10 billion in funding from Facebook and Google in 2020, with the tech giants now owning a nearly 18 percent stake in the telecom company.
With this kind of firepower in Reliance’s hands, its clear that the Indian retail titan has its sights set on dominating the e-commerce space throughout the country, which still has plenty of room for growth. In fact, India’s e-commerce sector is expected to be worth nearly $72 billion over the next two years, per eMarketer.
The India Brand Equity Foundation (IBEF) is even more optimistic on the growth of the channel, forecasting that e-commerce will surge to $200 billion annually by 2026.
Outsiders, even one as large as Amazon, which added 10 new fulfillment centers, five new sortation centers and nearly 200 delivery stations alone in its third quarter, have more hurdles to handle as they break into the e-commerce market.
India only allows foreign e-commerce players to operate as a marketplace to connect buyers and sellers, but the government is now considering tightening those rules again to include sellers in which a foreign e-commerce firm holds an indirect stake through its parent.
Late last month, a U.S. lobby group which represents firms including Amazon and Walmart urged India not to tighten foreign investment rules for e-commerce companies again, according to a letter seen by Reuters.
Alongside Amazon’s own operations in India, the company holds indirect stakes in two of its biggest online sellers in India, Cloudtail and Appario. Walmart also has made its own presence felt in Indian e-commerce with an 82 percent stake invested in online giant Flipkart.