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One look at their finances and it's clear why they're doing this. According to their SEC filings, last year Amazon brought in $6.5 billion in shipping revenue [

One look at their finances and it's clear why they're doing this. According to their SEC filings, last year Amazon brought in $6.5 billion in shipping revenue [1], and spent $11.5 billion on shipping costs. Take those numbers together and they lost $5.0 billion subsidizing shipping. They lose more money on shipping every year than most startups make in a decade. It's a huge cost on their budget, not hard to see why management is trying to cut costs. [1] Includes some revenue earned from Amazon Prime memberships; excludes shipping revenue of third-party sellers not under the Fulfilled by Amazon program Data is from page 26 of their 10-K, linked below https://www.sec.gov/Archives/edgar/data/1018724/000101872416000172/amzn-20151231x10k.htm https://www.sec.gov/Archives/edgar/data/1018724/000101872416...

deleted 11y ago
[deleted]
mdasen 11y ago
In a certain way, isn't that like saying BestBuy spend $X billion on storefront real-estate and made $0 in people paying in "walk-out-the-storefront-with-your-item" charges? Shipping revenues will never cover shipping costs as long as they provide even one free shipment a year (and don't overcharge people paying for shipping). Shipping is one of those costs that you have to pay like having storefronts. The goods have to actually be purchasable by customers somehow. Retail shops sink costs in their stores. It's made up for by the margins on the items they sell. I'm not saying that Amazon shouldn't try to minimize their losses on shipping just as stores should figure out whether having one retail presence in a city is more cost effective than having two. But I think a more interesting piece for me would be a comparison of Amazon's shipping costs to other retailers' storefront costs. If the $5B in shipping subsidies is way lower than what Walmart or BestBuy are paying in "storefront subsidies", it isn't necessarily something so outrageous. It's a cost of doing business. $5B sounds like a lot of money (and indeed it is), but what is it compared to the storefront costs of competitors? How much does Amazon save by having highly-productive warehouse workers as opposed to lower-productive retail employees?* Maybe $5B is huge compared to what Walmart spends on its retail presence. Maybe Amazon warehouses aren't much more efficient than BestBuy stores. Or Maybe this is simply a move that Amazon is making because it thinks it has gained enough market power (and enough buy-in to Prime) to start making anti-consumer moves rather than a cost that's unsustainable compared to the costs of retail. Walmart's revenue was $485.7 billion in 2015. Amazon's revenue was $107B last year. Spending less than 5% of revenue on getting the products to the customers doesn't sound outrageous. Does it seem likely that Walmart spends $24B on store-front costs that Amazon doesn't have to get their revenue? You're not wrong that companies will try to cut costs. I guess my question is simply: is this really an onerous cost compared to revenue (as judged by what competing retail firms pay)? If it's par for the course (or less), it feels like Amazon flexing its market power against consumers. If it is an onerous cost compared to what Walmart or BestBuy have to spend, then life has crappy trade-offs that need to be made to make things reasonable. *This isn't a dig at retail employees. It's just pointing out that when customer traffic is low at a retail venue, they're around with less to do. By contrast, warehouse workers can be utilized more efficiently.
- achow 11y ago
  You make very good points. For comparison, the lease amount of Target's Canadian (failed) expansion was for $1.3B USD for 220 stores. https://en.wikipedia.org/wiki/Target_Canada https://en.wikipedia.org/wiki/Target_Canada [Edit] Target USA stores as of May 2015: 1795 http://www.forbes.com/sites/walterloeb/2015/05/22/what-is-the-future-for-target-stores/#642f3c9b8686 http://www.forbes.com/sites/walterloeb/2015/05/22/what-is-th... Amazon's $5B shipping loss now almost looks quaint, if one factors in absence of retail stores and presence of handful number of Warehouses.
- cookiecaper 11y ago
  I think it would behoove Amazon to have a network of "customer pickup centers" where you can order something on Amazon, it gets shipped by Amazon itself to a customer pickup center via air, and the customer drives to close off the figurative "last mile". Alternate idea: Amazon builds a central warehouse in each major metro that contains the most-ordered items for that area, has trucks that run out to UPS Stores and drop off every hour, and the customer completes the last mile and goes to pick up his package at the designated UPS Store within 2-4 hours from the time he placed the order. I'm sure they've already considered all this kind of navel-gazing, but if customers were able to pick up within 3-4 hours of placing an order under this type of system, it'd be awesome, and I think a big win for Amazon. One of the worst things about ordering on Amazon, even as a Prime member who lives in a place where free same-day is often available, is having to wait around with no control over when the product will arrive. This would beat free same-day, which for us rarely arrives before 8:30pm no matter how early you get the order in after midnight. Really Wal-Mart and Amazon are not so different. The difference is that Wal-Mart keeps quantities of the product within driving distance of 90% of the population, so they can have the product a half-hour after deciding they need/want it. The ability to close this gap has got to be one of the most important milestones for online retail. Ad-hoc delivery networks like UberEats are kind of already doing this. Sure would be a crazy turn of events if someone started to knock down Amazon's retail business by leveraging the latent bandwidth in the city's existing retail and crowd-sourced driver networks.
  - Cymen 11y ago
vijayr 11y ago
The problem isn't they increased the minimum order for free shipping or even that they charge for shipping - it is the deceptive advertising/wording. Among the big companies, Amazon has a reputation for treating their customers well (even if they screw their suppliers, workers etc). That seems to be slipping.
swehner 11y ago
That page has some explanations including what they will be doing, "We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing placement of fulfillment centers, negotiating better terms with our suppliers, and achieving better operating efficiencies. We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers." Those explanations do not include what you're saying.

deleted 11y ago

[deleted]

mdasen 11y ago

In a certain way, isn't that like saying BestBuy spend $X billion on storefront real-estate and made $0 in people paying in "walk-out-the-storefront-with-your-item" charges? Shipping revenues will never cover shipping costs as long as they provide even one free shipment a year (and don't overcharge people paying for shipping). Shipping is one of those costs that you have to pay like having storefronts. The goods have to actually be purchasable by customers somehow. Retail shops sink costs in their stores. It's made up for by the margins on the items they sell. I'm not saying that Amazon shouldn't try to minimize their losses on shipping just as stores should figure out whether having one retail presence in a city is more cost effective than having two. But I think a more interesting piece for me would be a comparison of Amazon's shipping costs to other retailers' storefront costs. If the $5B in shipping subsidies is way lower than what Walmart or BestBuy are paying in "storefront subsidies", it isn't necessarily something so outrageous. It's a cost of doing business. $5B sounds like a lot of money (and indeed it is), but what is it compared to the storefront costs of competitors? How much does Amazon save by having highly-productive warehouse workers as opposed to lower-productive retail employees?* Maybe $5B is huge compared to what Walmart spends on its retail presence. Maybe Amazon warehouses aren't much more efficient than BestBuy stores. Or Maybe this is simply a move that Amazon is making because it thinks it has gained enough market power (and enough buy-in to Prime) to start making anti-consumer moves rather than a cost that's unsustainable compared to the costs of retail. Walmart's revenue was $485.7 billion in 2015. Amazon's revenue was $107B last year. Spending less than 5% of revenue on getting the products to the customers doesn't sound outrageous. Does it seem likely that Walmart spends $24B on store-front costs that Amazon doesn't have to get their revenue? You're not wrong that companies will try to cut costs. I guess my question is simply: is this really an onerous cost compared to revenue (as judged by what competing retail firms pay)? If it's par for the course (or less), it feels like Amazon flexing its market power against consumers. If it is an onerous cost compared to what Walmart or BestBuy have to spend, then life has crappy trade-offs that need to be made to make things reasonable. *This isn't a dig at retail employees. It's just pointing out that when customer traffic is low at a retail venue, they're around with less to do. By contrast, warehouse workers can be utilized more efficiently.

achow 11y ago
You make very good points. For comparison, the lease amount of Target's Canadian (failed) expansion was for $1.3B USD for 220 stores. https://en.wikipedia.org/wiki/Target_Canada https://en.wikipedia.org/wiki/Target_Canada [Edit] Target USA stores as of May 2015: 1795 http://www.forbes.com/sites/walterloeb/2015/05/22/what-is-the-future-for-target-stores/#642f3c9b8686 http://www.forbes.com/sites/walterloeb/2015/05/22/what-is-th... Amazon's $5B shipping loss now almost looks quaint, if one factors in absence of retail stores and presence of handful number of Warehouses.
cookiecaper 11y ago
I think it would behoove Amazon to have a network of "customer pickup centers" where you can order something on Amazon, it gets shipped by Amazon itself to a customer pickup center via air, and the customer drives to close off the figurative "last mile". Alternate idea: Amazon builds a central warehouse in each major metro that contains the most-ordered items for that area, has trucks that run out to UPS Stores and drop off every hour, and the customer completes the last mile and goes to pick up his package at the designated UPS Store within 2-4 hours from the time he placed the order. I'm sure they've already considered all this kind of navel-gazing, but if customers were able to pick up within 3-4 hours of placing an order under this type of system, it'd be awesome, and I think a big win for Amazon. One of the worst things about ordering on Amazon, even as a Prime member who lives in a place where free same-day is often available, is having to wait around with no control over when the product will arrive. This would beat free same-day, which for us rarely arrives before 8:30pm no matter how early you get the order in after midnight. Really Wal-Mart and Amazon are not so different. The difference is that Wal-Mart keeps quantities of the product within driving distance of 90% of the population, so they can have the product a half-hour after deciding they need/want it. The ability to close this gap has got to be one of the most important milestones for online retail. Ad-hoc delivery networks like UberEats are kind of already doing this. Sure would be a crazy turn of events if someone started to knock down Amazon's retail business by leveraging the latent bandwidth in the city's existing retail and crowd-sourced driver networks.
- Cymen 11y ago

vijayr 11y ago

The problem isn't they increased the minimum order for free shipping or even that they charge for shipping - it is the deceptive advertising/wording. Among the big companies, Amazon has a reputation for treating their customers well (even if they screw their suppliers, workers etc). That seems to be slipping.

swehner 11y ago

That page has some explanations including what they will be doing, "We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing placement of fulfillment centers, negotiating better terms with our suppliers, and achieving better operating efficiencies. We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers." Those explanations do not include what you're saying.