Amazon’s retail CEO, Doug Herrington, emphasized the necessity for the company to streamline expenses in order to allocate funds for new growth initiatives. These cost reductions are specifically aimed at enhancing delivery efficiencies to lower shipping costs.
Amazon is channeling investments into AI data centers, warehouses, and expedited shipping as part of its strategy for future expansion. Herrington stated that for Amazon to seize new opportunities for growth, it must persist in its efforts to cut costs. During an all-hands meeting last month, Herrington expressed the dual focus on cost reductions and investments in innovation, as highlighted in a recording obtained by Business Insider.
“We have to keep reducing costs so that we can afford the big investments in big new businesses,” he noted. Herrington discussed the concept of cost-to-serve for each shipment, which gauges the expenses associated with fulfilling and transporting shipments through the supply chain, and how the company plans to enhance this by tackling inefficiencies. He also mentioned that Amazon has managed to lower its average cost-to-serve per unit thanks to investments in delivery and customer service.
His comments indicate that Amazon’s ongoing cost-cutting measures will likely persist this year, even amidst significant business investments. Since the end of 2022, Amazon has laid off over 27,000 employees and discontinued several less profitable services and projects. Recently, about 200 staff members from its fashion and fitness division were let go.
These actions have contributed to record profit levels and cash reserves for Amazon, a positive shift welcomed by Wall Street in recent years. Concurrently, Amazon has made substantial investments in AI data centers and enhanced warehouse capabilities for more efficient deliveries. Projections for 2025 indicate that Amazon will reach a record $105 billion in capital expenditures.
An Amazon spokesperson chose not to comment on this issue.
Every single penny matters
During the meeting, Herrington asserted that the paths of cost reductions and new investments should be seen as complementary rather than mutually exclusive. He emphasized the importance of achieving a balance in order to enhance operational efficiency.
“My suggestion would be for all the teams that if you find yourself only doing cost reduction with no invention and innovation, or if you find yourself only working on innovation and not thinking at all about how to become more efficient, then you probably don’t have the right balance. It’s up to all of us to make sure that within our team and within our portfolio of work we’re working on both at the same time,” Herrington advised.
He also reiterated Amazon’s commitment to enhancing fast shipping options, including same-day and drone deliveries, and expanding product selections through budget-friendly services like Haul and Fresh Grocery, while also incorporating new brands into its marketplace. Herrington mentioned the company’s efforts to improve customer convenience via personalized AI services such as Rufus.
Gail Carpenter, Amazon’s chief financial officer for retail, echoed Herrington’s sentiments, highlighting that the cost reductions paved the way for investing in superior shopping experiences, characterized by swifter delivery and competitive pricing. Carpenter noted that Amazon’s recent investment in regional warehouses has yielded savings in transportation costs by shortening shipping distances.
“As a reminder, this work isn’t just about cost reduction — it enables us to invest in a better customer experience,” Carpenter explained. “When we reduce waste and inefficiency, we can offer faster delivery, better prices, and expand selection in a profitable way.” She added that Amazon had achieved improvements in the average cost-to-serve on a per-unit basis for two consecutive years and aims to continue this momentum into 2025, encouraging team members to contribute additional cost-saving proposals.
“We’re in a game of pennies,” Carpenter remarked. “Every single penny matters, so keep bringing your ideas forward.”
