By Sebastian Herrera and Merrill Sherman
Amazon.com Inc. just reported its greatest quarter ever, but getting there wasn't easy. The coronavirus pandemic brought enormous challenges to the tech giant early on, tripping it up in a way rarely seen in its history.
Delivery times and customer reviews slipped, essential items were unavailable in some areas, and worker absences created extended challenges. For the first time in years, the company's share of e-commerce in the U.S. actually fell.
But as the virus raged on, Amazon spent billions of dollars on its response, hiring workers, increasing pay, improving delivery times, conducting medical tests for employees and stabilizing its supply chain. Its share of online sales has already begun to rebound.
Investors are confident that the consumer habits brought about by the coronavirus will endure and ultimately make Amazon more powerful. The e-commerce juggernaut has added more than $700 billion to its market value since its March lows, or about the size of Facebook Inc. Its market capitalization now exceeds $1.5 trillion, behind only Apple Inc. and Microsoft Corp. among public companies.
Amazon Delivery Times and Reviews Slip
Many of Amazon's temporary shortcomings during the pandemic came about because the company wasn't prepared to handle the boost in demand it saw. While it still led competitors overall in package delivery times, its famed shipping speeds slipped.
The company had to extend shipping windows by days for essential products and even longer for nonessential items. Best Buy Co., Target Corp. and others sometimes beat Amazon in how fast they got products to customers.
Amazon's supply problems and delivery speeds caused frustration among customers and led to a rare surge in negative reviews of the company.
Amazon Web Traffic Falls
Amazon's troubles led shoppers to visit other e-commerce sites. As Amazon's web traffic decreased, Walmart Inc., Target and the online furniture store Wayfair Inc. saw traffic climb.
Amazon's inventory relies on keeping fewer items in stock to speed up efficiency, making it different from traditional retailers, which have varying inventory levels at their stores. The system works well when demand holds steady, but it can be stretched if there is a rush for which the company is unprepared, which happened in the first weeks of the pandemic. As it tried to control its supply chain, Amazon removed certain features, such as online coupons from its website, to encourage shoppers to buy less.
Pandemic Changes Shopping
E-commerce has seen unprecedented acceleration during the pandemic. Besides Walmart and Target, smaller companies such as the grocery delivery firm Instacart have had record growth in sales. Shopify Inc., an e-commerce platform that sells businesses a variety of tools to make it easier to operate online stores, has more than doubled its stock price since the beginning of March.
Investors see Amazon, which accounts for more than a third of online U.S. sales, as the biggest winner. Amazon made a record $88.9 billion in sales during its second quarter, and its nonretail businesses continue to lift earnings for the company.
Although Amazon's operations were weakened, investor confidence remains high because of the company's significant investment in logistics and delivery capabilities. Amazon has built many more fulfillment and delivery stations than competitors. It also continues to expand its delivery-vehicle and airline fleets, creating greater capacity for it to manage more of its own deliveries.
Amazon Falters, Then Gains
The company's dominant grip on online sales weakened after demand on its site reached holiday-like levels during the first weeks of the crisis. Many items on Amazon became unavailable for weeks, forcing customers to look to other companies.
Walmart, Target and Best Buy, all of which invested substantially in their online operations in past years, benefited from Amazon's problems.
Amazon's share of U.S. online shopping, however, has been back on the rise as its operations have stabilized. The company's profit in the April-to-June period doubled from a year earlier to $5.2 billion, in part because it shipped more products than it had expected.
Amazon's Market Value Soars
Big Tech is thriving during the pandemic. And among the world's biggest tech companies, Amazon's market value has surged since the beginning of March, rising more than 60%.
--Additional graphics by Kurt Wilberding
Write to Sebastian Herrera at Sebastian.Herrera@wsj.com