Amazon Spending $4 Billion on Q2 Virus-Related Costs

Amazon April 29 disclosed it is spending upwards of $4 billion on costs related to the coronavirus in the current second quarter (ending June 30), including $300 million to test all of its employees for COVID-19. The e-commerce behemoth spent $600 million on related virus costs in the first quarter, ended March 30.

With national and local government slowly opening their economies, Amazon factors large in many companies, including employing tens of thousand of workers in warehouses, supply channels and offices. To reduce liability and concerns among workers, Amazon said it would test every employee going forward. The company ended 2019 with nearly 800,000 workers.

“We’ve put some of our best people on [testing],” CFO Brian Olsavsky said on the April 29 fiscal call. “[Tests] are not readily available on the scale that we need for our employees.”

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With testing for the virus becoming a political issue for President Trump, Amazon has gone in-house to develop and procure proprietary tests for its employees coming back to offices and warehouses around the country and oversees.

“We are working to do that ourselves,” Olsavsky said. “Our main concern is getting testing in the hands of our employees.”

The CFO said overnight demand for essential items, including healthcare supplies and personal protective equipment, stretched Amazon’s internal capabilities unlike anything it had to do preparing for special sales events, including Prime Day.

“I think we’ve learned it’s easier to get ready for a holiday or for Prime Day than it is to get ready for something like this. When everything hits at once,” Olsavsky said, alluding to high demand for essential items and the need to restock them automatically.

“That’s not something we want to keep learning,” he said.

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He said that should Amazon develop “excess capacity” in its virus tests, the possibility of marketing and/or distributing outside the company exists. The executive contends the bulk of projected temporary COVID-19 expenses revolve around “very expensive people” costs, wages, productivity and relief funds.

“We can’t really tell how long that will last,” Olsavsky said. “We will probably learn a lot more in the next few weeks and months.”

Walmart Teases One-Day Shipping

The shipping delivery war took another turn after Walmart went to social media to hint it would match Amazon’s decision to switch from free two-day shipping for Prime members to one-day deliveries.

“One-day free shipping … without a membership fee. Now THAT would be groundbreaking. Stay tuned,” Walmart tweeted April 26 the day after Amazon disclosed it would spend upwards of $800 million upgrading internal and external shipping capacity for one-day shipments.

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Amazon charges $119 annually for its Prime membership, which includes free access to movies and TV shows on Amazon Prime Video, music on Prime Music and two-hour delivery (for a fee) for Prime Now store deliveries, among other features.

Amazon’s announcement had a ripple effect on retail stocks, sending Walmart and Target shares down 1.9% and 5.7%, respectively, in April 26 trading.

The switch is expected to put added pressure on big box retailers such as Best Buy, Office Depot and Dick’s Sporting Goods, among others.