Amazon.com, the Internet site that defines e-commerce to millions of Americans, announced yesterday that it was cutting its workforce by 15 percent, or 1,300 employees.
"This was painful but very necessary for us to reach our goal of profitability in the fourth quarter," Warren Jenson, Amazon's chief financial officer, said in a conference call with reporters. That profitability, if achieved, would be on a "pro forma" operating basis, which doesn't take into account interest that must be paid on the company's $2 billion in debt.
Most of the staff cuts stem from the company's decision to shutter a distribution center in Georgia as well as its original customer-service center at its home base in Seattle. That center has been the focus of a unionization drive.
Amazon, which started as a bookstore but now sells a broad range of products including wireless telephones and paper towels, also reduced its revenue estimates for 2001 to no more than $3.5 billion from $4 billion. Jenson cited the weak economy as the prime culprit.
Some evidence of a slowdown showed up in the fourth quarter. Amazon said today that its revenue for the period was $972 million. Before the retailer "pre-announced" some results earlier this month, analysts had been predicting revenue of more than $1 billion.
Jenson and Amazon chief executive Jeff Bezos stressed yesterday in a separate conference call, this time with analysts, that the company was making progress in proving the viability of its business.
"We have now validated that people will buy non-media products from Amazon.com," Bezos said. The question has become "How much of the worldwide market is addressable?"
The answer, he indicated, was just about all of it, as Amazon becomes "the earth's first truly worldwide retailer."
Employees who were laid off were naturally less ebullient. "Any illusions I might have had about the nobility of Amazon.com have been shattered," said Alan Barclay, a customer-service representative who was involved in a well-publicized but so far unsuccessful unionization effort.
Many customer-service representatives in Seattle had long worried that they could be the target of layoffs, in part because their city-based unit was among the most expensive to operate. The company also has customer-service centers in India, Grand Forks, N.D., and Huntington, W.Va.
Marcus Courtney, a representative for WashTech, a division of the Communications Workers of America, said "the number one issue workers were organizing on is job security."
Courtney, who was helping to organize the customer-service representatives, said he will ask the National Labor Relations Board to investigate. "Some serious red flags have been raised" by the fact that the only customer-service unit to be dismantled was the focus of union efforts, he said.
CFO Jenson said the unionization activities "had absolutely nothing to do" with decisions to close the center.
While layoffs and shutdowns have quickly become a staple of the slumping dot-com economy, Amazon has mostly escaped unscathed. Last year at this time, 150 workers -- 2 percent of its staff -- were let go.
Bezos said yesterday that a trust fund was set up with $2.5 million in Amazon stock. It would be distributed to the laid-off employees in 2003. "If we do well, they will benefit alongside us," Bezos said.
Amazon went public at a split-adjusted price of $1.50 a share. In late 1998, its stock traded above $100 a share, making Bezos a billionaire several times over. Last month, the stock traded as low as $13. It closed yesterday at $18.94, down $1.19.
The company said its loss in the fourth quarter was $545.1 million, or $1.53 a share, with $339 million of it due to what the company called "impairment of goodwill and equity investments." Many of the investments Amazon have made in other e-commerce sites have greatly shrunk in value over the past 10 months. In the fourth quarter of 1999, the company had a loss of $323 million, or 96 cents a share.
When the one-time items were excluded, the numbers looked better. Amazon lost $90.4 million (25 cents), compared with a loss of $184.9 million (55 cents) a year earlier. Analysts surveyed by First Call/Thomson Financial had been anticipating a per-share loss of 26 cents.
The future of Amazon is the subject of fierce debate in the financial and retailing communities. Some hold that the company, with 19.8 million active customers in the last year, will truly be the global retail superstar that Bezos is promising.
Others argue it is doomed. On Downside.com's Deathwatch, July 10 is given as the date Amazon will run out of cash, based on its financial statements through last Sept. 30.
Ken Cassar, an analyst with Jupiter Media Metrix, takes a middle view. "Amazon has a viable business, but I don't think they'll successfully compete with Wal-Mart. Their aspirations will have to be a bit smaller if they hope to be around in the long run. When you look at categories like lawn and garden, they don't fit tightly with Amazon's book-and-entertainment foundation."