Amazon’s Labor Unrest May Show at the Margins
Unionization would be a challenge given Amazon’s distribution scale, but impact could be felt on margin expansion
By Dan Gallagher
Would unionization hamstring Amazon.com’s AMZN 2.16% business?
The answer isn’t clear-cut.
About 6,000 workers at one of the company’s fulfillment centers in Alabama have been given a chance to vote on whether to join the Retail, Wholesale and Department Store Union.
That vote is being tallied by the National Labor Relations Board, with results expected sometime this week.
The group represents less than 1% of Amazon’s base of about 950,000 U.S. workers.
If successful, though, it would also be the first union to penetrate the 26-year-old e-commerce pioneer that is now the world’s second-largest public company by annual revenue, according to S&P Global Market Intelligence.
Amazon opposes the idea, frequently pointing to its $15-an-hour starting wage and disputing reports of harsh working conditions.
The company has allowed its main Twitter account to pick public fights with lawmakers, including former presidential candidates Sen. Elizabeth Warren and Sen. Bernie Sanders.
President Biden also has voiced support of Amazon workers unionizing—again putting the company directly at odds with the occupant of the Oval Office.
Amazon’s opposition would suggest unionization poses a major threat to its business.
But the company has never spelled that out as a major risk to shareholders.
Its most recent 10-K filing from February mentions “labor or trade disputes” at the bottom of a list of 18 bullet-point items that could impact its operating results.
Wall Street analysts—generally eager to duck hot-button political issues—also have avoided the topic so far.
Amazon has long worked hard to avoid the trappings of a big company.
Exiting Chief Executive Jeff Bezos still proclaims to shareholders in his annual letter every year that “it’s still Day 1.”
But unionization may be an unavoidable fact of life for a company that now operates 820 distribution facilities encompassing more than 274 million square feet in the U.S. alone, according to logistics consulting firm MWPVL International Inc.
The Bureau of Labor Statistics lists transportation and warehousing as having the second-highest union representation among private-sector industries.
But scale also works in Amazon’s favor, as unionization would need to spread well beyond a single facility in Alabama to have a noticeable impact.
And even then, the effect is unclear. Consider the example of Amazon’s two largest peers in logistics: More than three-quarters of United Parcel Service’s domestic workforce are represented by unions, according to the company’s most recent 10-K filing.
FedEx is the opposite; the company said in its own annual filing that only the pilots of its FedEx Express division are unionized, representing a small number of its total employees.
And yet, both companies averaged an annual margin of just under 13% before interest, taxes, depreciation and amortization for the years 2010 to 2019, according to data from S&P Global Market Intelligence.
Amazon also has survived challenges to its cost structure before.
The company once largely avoided collecting sales tax on most of the goods it sold over its site, which competitors argued gave it an unfair advantage.
That has largely disappeared over the past few years because of new state laws.
It hasn’t kept the company from growing its share of retail sales.
Still, it may not take much to hurt Amazon in a way investors care about.
A key component of Amazon’s surging market value has been its ability to deliver strong revenue growth along with an expanding bottom line.
Amazon averaged 30% annual sales growth between 2017 and 2020 while also more than doubling its annual operating margin from 2.3% to 5.9% in the same period, thanks mostly to its rapidly growing cloud-computing business.
Wall Street expects Amazon’s operating margins to hit nearly 9% by 2023.
But those are still thin margins by tech standards.
And Amazon’s labor-intensive retail business also gives the company a very different profile relative to its peers.
Amazon generated a little under $30,000 in revenue per employee in 2020—nearly one-fifth the average of Apple, Microsoft, Facebook and Google parent Alphabet, according to S&P data.
Amazon needs a large army to do business. It is little wonder the company worries at any sign of revolt.
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