Amazon Has Apparently Killed a Big Part of its Business

The retailer has been shedding staff and that suggests that the company is exiting a once-key growth area.

It’s no longer day one at Amazon (AMZN) – Get Free Report.

The e-retail giant, which has always focused on the long term, not the next quarter’s earnings, has clearly dropped that philosophy. 

Chief Executive Andy Jassy hasn’t directly said that, but he has decided to gut the stores division, the group responsible for building out its brick-and-mortar presence.

Amazon has also made major cuts in its People, Experience, and Technology, or PXT, group, essentially a broad vision of a human-resources department, which had a mission “to turn Amazon into Earth’s best employer.”

Jassy commented on the cuts in a blog post.

“Between the reductions, we made in November and the ones we’re sharing today, we plan to eliminate just over 18,000 roles. Several teams are impacted; however, the majority of role eliminations are in our Amazon Stores and PXT organizations,” he wrote.

Amazon Gives Up on Brick-and-Mortar (Mostly)

Building out a national brick-and-mortar presence was never going to be easy. It’s expensive, slow, and highly competitive. In fact, it’s hard to think of another company that could even consider building a nationwide network of grocery and convenience stores.

To build out a nationwide mix of Amazon Fresh grocery stores and Amazon Go convenience stores, the company would have had to commit billions in capital expense over years. That means multiple quarters of smaller profits and even losses — something Jeff Bezos was willing to do and Jassy is not.

The problem, and it’s a damning one for Amazon’s future, is that building this store network makes sense for the retailer. 

The online retailer has buying power that’s rivaled only by Walmart (WMT) – Get Free Report, Costco COST, and Target (TGT) – Get Free Report. If it had physical stores across the country, it could offer groceries cheaper than regional chains do and leverage those buildings for its delivery business.

Amazon’s entire business model has been about investing where other companies can’t afford to. That has given it a long-term logistics advantage that Walmart has spent billions to duplicate and really no other company has been able to equal.

These cuts may help Amazon’s next few quarters, but they won’t pay off the way investment would have.

Echo-Alexa Aspirations Might Be Scaled Back    

While retail stores likely would pay off for Amazon, its investment in owning your living room has not paid off. The point of Echo devices and the Alexa artificial-intelligence voice assistant was supposed to facilitate people ordering more items from the online retailer.

That has not happened, and Echo/Alexa has largely been a failure that loses billions of dollars for Amazon. These devices have a lot of uses. Echos can play music and podcasts and help with home automation, and they have been very valuable for people with certain disabilities. 

But for Amazon these devices have not accomplished what the company wanted them to. That makes Amazon very likely to quietly stop investing in Alexa and scale back the Echo line’s aspirations.

What’s not likely is that Amazon fully kills Alexa or Echo devices, but it could just make them high-quality home-automation hubs/voice-controlled speakers.

If that happened, it might make sense for the retailer to charge more for the loss-leader devices, but perhaps it could achieve profitability at current prices if it slashed investment.

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