Amazon is Shrinking

During the height of the pandemic, as the world shifted heavily toward online shopping, Amazon moved aggressively to expand their capacity to meet consumer demand. This included hiring additional workers and expanding their warehouse space. Between 2019 and 2021, Amazon’s real estate footprint grew from 272 million square feet to 525 million square feet. This real estate includes the large warehouses where products are stored, packed, and shipped, and delivery stations where they are loaded on to smaller trucks and vans to be dropped of at customers’ homes and businesses.

Last week the company announced plans to close 21 existing facilities, cancel plans to build 21 facilities, and delay opening or finishing an additional 27 facilities. This comes as consumers have gone back to shopping in person and slowed their consumption in the face of rising inflation. Amazon has also reduced its workforce by about 100,000 employees, not including delivery drivers, who are employed by third-party companies. However, they have also said that they are attempting to relocate employees of closed facilities to other nearby locations.

Despite the large number of closures, they are also planning to open new locations in certain areas and are expanding and modernizing others.

Discussion Questions:

1. Explain the difference between the short run and the long run. What are Amazon’s short run inputs, and what are their long run inputs?

2. Based on Amazon’s decision to close or delay opening new facilities, which portion of the Long Run Average Total Cost curve is Amazon currently on?

3. Amazon currently works with 3,500 third-party companies to deliver their merchandise. In the long run, what do you expect to happen to the number of delivery firms and the number of deliveries each firm makes? Explain.

Sources| CNBC: This map shows where Amazon is closing warehouses across the country; Unsplash: Photo of Amazon Boxes