Amazon: Not Letting a Good Crisis Go to Waste, Part 1
·4 min read

The Covid-19 pandemic has caused one of the greatest economic and social disruptions in living memory. The lockdown orders effectively ground the economy to a halt. Many businesses have been driven into insolvency, while many more have been left teetering on the brink. Whole industries have been forced to fight for survival. Even now, as economic activity has begun to pick up again amid easing restriction, few businesses look set to enjoy a swift recovery.

Yet not all businesses have suffered this fate. Indeed, while other companies floundered in the face of the scale and severity of the pandemic, Inc (AMZN) has thrived, increasing its monopoly and seizing opportunities to build market share, mind share and public goodwill.

Rapid crisis response

In many ways, this crisis seems almost tailor-made for a business like Amazon to prosper. With many reluctant to venture out, even for groceries, Amazon has been able to fill the void with expanded delivery offerings.

Amazon has adapted rapidly to the changed realities brought about by the crisis, adopting a veritable wartime footing in response. The company has prioritized distribution of essential products, such as household staples and medical supplies, as housebound consumers have relied increasingly on e-commerce. This showcases to stark effect just how much of a chokehold Amazon has over buyers and sellers alike.

Having faced mounting political and public pressure amid accusations of engaging in anti-competitive business practices, effectively destroying the retail sector and establishing a monopoly across a multitude of logistics and distribution channels, Amazon was in need of a public relations makeover. Covid-19 has provided the opportunity, and the company did not hesitate to capitalize on it. With so many people so visibly reliant on its services, Amazon has been able to portray itself as an essential part of the global supply chain.

Amazon has embarked on a number of key initiatives to hammer this point home, as Forbes reported on April 19:

"Amazon has been culling consumption in a variety of ways during the COVID-19 pandemic. This week, Amazon went a step further and actively pushed consumers not to buy things they don't need by not promoting items, not showing you what others bought and other tactics all to slow consumption and make sure the wheels don't come off the cart."

Additionally, the company has sought to demonstrate its importance as an employer, announcing the hiring of 175,000 warehouse and delivery workers to meet increased demand, as well as the expansion of such things as grocery delivery capacity.

De-prioritizing profitability

While most companies saw massive hits to their sales in the first quarter of 2020, Amazon actually saw its revenue grow a whopping 26% year over year to $75.5 billion. But this top line growth did not translate to the bottom line. While Amazon reported net income of $3.6 billion in the first quarter of 2019, it managed just $2.5 billion in the first three months of 2020.

Amazon's diminished first quarter profitability was not the result of poor performance. It was actually by design. Poised as it was to prosper amid the lockdowns, Amazon opted to eschew profitability in favor of growing its brand.

This effort appears to be another component of the company's broader crisis initiative, which has aimed to cast Amazon in the role of an essential services provider. CEO Jeff Bezos made this a point during the company's first quarter earnings call on April 30, saying, "The service we provide has never been more critical."

Playing the long game

It did not take observers long to recognize how the disruptions of the pandemic would likely play out to Amazon's advantage. Vox Recode's Jason Del Rey, for example, observed that other businesses' losses would likely prove to be Amazon's gain: "Amazon was already powerful. The coronavirus pandemic cleared the way to dominance."

The crisis has undoubtedly allowed Amazon to increase its reach and influence, and the company is poised to prosper further in its aftermath. By focusing on the long-term opportunity, rather than short-term profitability, Amazon has set itself up for accelerated growth post-crisis.

Disclosure: No positions.

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This article first appeared on GuruFocus.