Dive Brief:

• Amazon's focus is "squarely on adding capacity to meet the current high customer demand," Director of Investor Relations Dave Fildes said on the company's Q2 earnings call Thursday, as the e-commerce giant and others rush to create more space in their networks ahead of peak season.
• The company has nearly doubled the size of its fulfillment network in the past 18 months ending June, said CFO Brian Olsavsky. But Amazon has still "been playing catchup pretty much since the pandemic started," leading to inventory storage constraints for its third-party sellers and retail operations.
• "We don't think we're the only ones who had that issue, and that's why we're building out our network so quickly," Olsavsky said, adding that most of the company's building openings for its network are planned in the second half of the year.

Dive Insight:

All signs point to another peak season capacity crunch, sparked by the acceleration of e-commerce growth once the COVID-19 pandemic hit.

Amazon-fulfilled unit volumes — which includes Amazon's retail business and Fulfillment by Amazon services used by third-party sellers — have doubled in the past two years, Olsavsky said. The company is spending heavily to keep pace: it's fulfillment costs increased 28% to $17.6 billion YoY. Amazon is also bolstering its middle- and last-mile capabilities, adding fulfillment centers, delivery stations to its network.

Even with these investments, Amazon's one-day delivery service has not yet returned to pre-pandemic levels in the United States, Olsavsky said.

"We are sitting here with demand volumes that have gone up," he said. "On an Amazon-fulfilled network basis, it doubled in a two-year period. So, we are not back to where we want to be on a number of dimensions."

Demand helped drive a 22% YoY increase in North America sales, but sales growth was "partially offset by fulfillment network capacity and supply chain constraints," according to its earnings report.

Amazon continues to hire employees to staff its fulfillment network. The company had 1.3 million employees in Q2, up 52% YoY. Olsavsky said the company currently has "very good staffing levels," but added that it's not without cost.

"It's a very competitive labor market out there and certainly the biggest contributor to inflationary pressures that we're seeing in the business," he said.

The cost to employ transportation and warehousing workers — including wages, salaries and employee benefits costs — in June increased 2.5% from the year before, according to the U.S. Bureau of Labor Statistics. And with Amazon hiring more in the next two quarters to bolster its peak season operations, Olsavsky said he "would probably count on wage pressure remaining for the immediate future."

Amazon’s executives did not provide specific hiring goals for this year’s peak season. Ahead of the 2020 peak season, Amazon looked to hire 100,000 new part- and full-time workers after already hiring an additional 100,000 fulfillment workers by mid-April. In 2019, Amazon aimed to hire 200,000 workers for the holidays.