Amazon.com will lay off 1,300 employees — most of those in Seattle — as it strives to make a profit by the end of this year, the company said yesterday. The layoffs will trim about 15 percent of the company’s 8,500 employees over the next few months and could portend darker days ahead for the Internet economy. But it probably will not spell trouble for the local economy as a whole, experts said.
About 850 Amazon employees will be let go in Seattle, bringing the total number of technology company layoffs here announced this month to 2,880, according to figures compiled by the Seattle Post-Intelligencer.
That’s more than all of the layoffs in Seattle’s Internet sector last year.
The move was not unexpected.
“When the landscape is being littered by carcasses, the last thing you want is to become one,” said Scott Smallman, managing director of investments at Seattle’s U.S. Bancorp Piper Jaffray. “It was the right thing to do at this time. We are finally seeing dot-coms making the push to become profitable — and soon.”
It was a tough announcement for Jeff Bezos, Amazon’s chief executive who couldn’t hire employees fast enough three years ago, and built a company culture around his motto: “Work hard, play hard, make history.”
“It was an extremely difficult decision. On a personal level, it was extremely distressing, not just for myself, but for everyone in the whole company,” Bezos said in an interview with the Post-Intelligencer late in the day. “It is clearly the right business decision.”
Many of the employees, who had been unnerved since rumors of the layoffs began over the weekend, were in tears after the announcement.
The news came yesterday as Amazon announced a loss for the fourth quarter of 2000 that was in keeping with analysts’ estimates, but tempered its outlook for 2001.
Company executives pointed to the softening economy, but said they are prepared to weather a downturn. Of the 1,300 Amazon employees to be laid off, about 450 work at a distribution center in Georgia which will be closed. About 400 work in the Seattle customer service center. The other 450 cuts are being made across the board in a number of departments. The company’s software development department will be the least impacted.
Some of the layoffs were effective today; others, including most of the customer service jobs, will be phased out through May.
The announcement was made during a press conference at 1:15 p.m., about 45 minutes before Bezos and Warren Jenson held a fourth-quarter earnings conference with analysts.
Amazon employees were told of the layoffs during meetings minutes earlier. Bezos said he sent e-mail to employees announcing the layoffs.
The company said it is a matter of cutting costs. The Seattle work force is expensive. Much of the customer service work is contracted out to a company in India.
Analysts said most investors expected the employee cuts.
Adam Hamilton, an analyst at McAdams Wright Ragen in Seattle, said Wall Street will appreciate that management is committed to managing profitability, “and willing to do uncomfortable things to get there.”
“I think investors will react with a relative yawn,” said analyst Smallman.
The company yesterday announced a net loss in the fourth quarter of $545.1 million, or $1.53 per share. That compares with a net loss of $323.2 million in the same quarter a year earlier.
Excluding certain costs, Amazon reported a net loss of 25 cents per share, compared with 55 cents per share a year ago. The figures excludes amortization of goodwill, stock-based compensation; non-cash investments.
Jenson said the fourth quarter of 2001 is the date that has always been the company’s internal goal for reaching profitability.Net sales for the fourth quarter of 2000 were $972 million, an increase of 44 percent compared with sales in the same quarter of 1999. For the year, which ended Dec. 31, net sales were $2.76 billion, a 66 percent increase in sales compared with all of 1999.
Besides laying off the 1,300 employees, Amazon will close the distribution center at McDonough in Georgia, which opened in 1999. The Seattle distribution center on South Dawson Street, which had been open year round, will be operated seasonally, in November and December. The customer service center in Seattle will be closed.
The restructuring will result in a charge of more than $150 million in the first half of 2001.
Besides offering departing employees a standard severance package, Amazon.com is establishing a trust fund with $2.5 million in company stock that will be distributed to the former employees in 2003.
“The effected people have contributed to the success of the company, as we do well, they should share in the fruits of that,” Bezos said.
He said the slowing economy nationwide was a key in the decision to cut staff.
“Pick up any newspaper and major corporations around the United States are announcing layoffs. People made plans based on a booming economy,” said Bezos.
Local economists are not too concerned about the layoffs at Amazon or any of the other dot-coms in the Seattle area. And they say the layoffs in the Internet sector are far different than the job cuts in the cyclical aerospace business.
“We have not seen an alarming trend where we are heading towards trouble,” said Chang Mook Sohn, executive director of the state’s Office of Forecast Council, adding that Boeing, Microsoft and the construction industry continue to hire. “The labor market is still pretty tight.”
He said the number of retail jobs, which includes e-commerce companies like Amazon.com, increased from 630,000 to 650,000 in the past year.
“Eight hundred fifty layoffs at Amazon.com looks like a large number, but when you look at the 650,000 people working in the trade sector it is not a very significant number,” he said.
Roberta Pauer, an economist with the state Department of Employment Security, agrees, saying most of the people being laid off at Amazon.com and other e-commerce operations are easily employable.
But Sohn did not deny the magnitude of the Amazon layoffs. They bring the total number of Internet company layoffs in Seattle since May — after technology stocks plunged — to 5,850. Had the Amazon layoffs all occurred in one month, the number would surpass the biggest monthly layoff at Boeing during the aerospace giant’s downturn in the late 1990s. While Boeing trimmed its local workforce by 26,120 in 1998 and 1999, it never laid off more than 2,000 people in a month, he said.
“If they become a healthier company because of the 850 staff reductions that will help the state’s economy,” Sohn said.
By KATHY MULADY
SEATTLE POST-INTELLIGENCER REPORTER