10 ms·

Amazon Ramps Up $13.9 Billion Warehouse Building Spree

119 points by hkimura 13y ago

zeckalpha 13y ago
Interesting that they complain about Amazon's operating margins. Isn't the consensus that it is intentional?
- notatoad 13y ago
  That's just what financial reporters do. Whether the margins are intentional or not, they're still information that bloomberg readers want to know about.
  - zeckalpha 13y ago
    Bloomberg readers should want to know why, rather than assuming that Amazon is actually trying to increase it's profits, like most companies. It could have been discussed in this article.
- smackfu 13y ago
  Yes, the article is written as if Amazon is compelled to take this action, and as a result their margins will suffer. But it's more like Amazon chooses to take this action, and doesn't care if it impacts their margin.
saosebastiao 13y ago
> The warehouse strategy carries risk. Fulfillment has become Amazon’s top operating expense, squeezing profit margins and contributing to a $39 million loss at the Seattle-based company last year. Not building warehouses carries more risk.
- Swannie 13y ago
  39M USD loss is a token loss, too. Cost of building, staffing and operating a warehouse is going to be far in excess of that.
hkimura 13y ago
Yeah, slow and steady growth...
- ceejayoz 13y ago
  Amazon's never been about "slow and steady" growth. They've been about long-term growth at the expense of short-term profit.
  - ihsw 13y ago
    Or, more to the point, using their dominance and abundance against their competitors. They may have razor thin margins, but that's only because they're leveraging their pricing to cut into the margins of their competitors. Lower prices here and there, raise them elsewhere to offset the cost. Their accounting department definitely has to be kept on their toes, especially to make sure things don't fly off the handle too much.
    - chris_mahan 13y ago
      Amazon: Fast, Cheap, and Good: Pick all three. They've really delivered. I've tried to not like Amazon, but they keep impressing with their fast service, availability, low price.
      - g4m8i7 13y ago
        Exactly. When Rise of the Warrior Cop came out, I wanted to pick it up on release day. None of the local bookstores had it in stock, but all were happy to order it for me. It would have taken them all 4-5 business days. I went to Amazon that night, and with Prime, I got it in 2 days, for about $10 less than the local brick and mortar stores. How can anyone compete with that? Especially if they build out their same-day service?
        ericd 13y ago
        Yeah, I think same day will strike a complete death blow for retail if they can pull it off well.
JonFish85 13y ago
From the Instacart CEO: "We don’t have to build warehouses, lease a fleet of trucks or manage perishable inventory, which substantially reduces our operational cost." If they guarantee delivery in 2 hours and they don't have these costs, they're paying someone else who has these costs, right? How can they really be a competitor to Amazon, then? I have to think that Amazon is operating on such razor-thin margins precisely because they think they can do a much better job than using someone else.
- rgarcia 13y ago
  They pay their delivery people. They're a competitor to Amazon in that they've traded the operational cost of warehouses for the risks associated with crowdsourcing (quality control, etc.). Amazon probably perceives the risk of crowdsourcing as too high, or at the very least it's outside of their operational "comfort zone".
  - JonFish85 13y ago
    But they're entirely different (to me). They essentially exist on top of other companies' operational costs of warehousing, trucks, etc, so those costs PLUS a profit (presumably) are built into Costco / Trader Joe's / whoever else they source from. They're a glorified courier system, it seems. If that's true, they're less a competitor to Amazon and more a competitor to FedEx / UPS / USPS.
- deleted 13y ago
  [deleted]
- samstave 13y ago
  I imagine that they are really the Uber in this area... They provide a good flexible service ontop of existing infrastructure at a premium cost to users. While that's just fine - I would love to see a service that lowers the cost to me as a consumer for food. Actually, let me rephrase that: I, personally, need a service that helps me reduce the amount of food I waste. With a family of (5) in my household, we waste a lot of food - and it drives me nuts. I hope that something along the lines of Blue Apron could help me throw out less/buy less.
ChuckMcM 13y ago
It is an interesting vote against local manufacturing. There is a small number of people who are betting that the 'future' won't be warehouses so much as they will be small 'build on demand' factories which create the item you ordered, when you order it. When you consider the 27.5yr depreciation life of this sort of physical plant you might guess that Amazon is betting against some sort of 'kindle' equivalent for goods (i.e. Shipping the information rather than the good itself)
- notatoad 13y ago
  I don't think you can really draw that conclusion. Even if local build-on-demand factories end up entirely replacing shipped goods, 27.5yrs is probably pretty close to a minimum timeline for that happening. Any huge systemic shift in the nature of physical goods like that will take a very long time.
- stevenrace 13y ago
  While I'm in favor of CNC'ing things on demand, it's doesn't scale very well. Machine time adds up - multiple tooling, batch processes like cleaning/finishing/painting,etc. 'The Market' seems to agree, as warehouse buildout (and purchasing) is booming right now - as it seems more economical to produce things in large runs and then hoard them in port cities like LA,New Orleans, Memphis, etc...
  - InclinedPlane 13y ago
    Nobody's attempted to build a fully automated, general purpose(ish) factory yet. I'm sure there'll be plenty of complexities and limitations, but there are limits and complexities with existing systems that we've just accepted as "the way things are". I'm fairly confident that general purpose automated manufacturing will become a reality and will be transformative, but I doubt it will completely take over the market. I'm pretty sure there'll be room for both.
- cm2012 13y ago
  The jewelry business I worked for had a mix of this. All the jewelry started out as a casting, to which a gemstone was added, most of the time after the product was ordered (made to order). However, we also used FBA extensively for the most common builds.
cm2012 13y ago
I enjoyed this article and found it illuminating. I work with a number of manufacturers (in jewelry, apparel, furniture, watches, etc.) who sell using Amazon Warehouses (the FBA program). Already, before the new warehouses, it smokes competitor warehouses that I've tried in terms of time and reliability. 52% of Amazon non-media sales come from 3rd party sellers like the companies I work for, last I checked. Some trends I think will come soon from Amazon FBA: 1) When Amazon perfects daily grocery delivery it will change the whole ballgame for UPS and USPS. Amazon will cut them out of the picture. I think the cost of shipping furniture especially will plummet. 2) Amazon launched FBA Export a while back to let merchants fulfilling through FBA U.S. ship anywhere in the world easily. Right now only a few SKUs are eligible, but they are working to expand this program ASAP. In a year or two, a ton of products on Amazon U.S. will be available anywhere. 3) A lot of mainstream people don't know but Amazon warehouses don't just ship to Amazon customers. Merchants can enable multichannel shipping for a price ($6 compared to $2.50 for Amazon orders), so a lot of eBay sellers, Rakuten sellers use FBA to fulfill.
- swang 13y ago
  How does Amazon perfecting daily grocery delivery relate to shipping furniture costs plummeting?
  - kirubakaran 13y ago
    The delivery infrastructure they build for grocery delivery can be used to deliver other things later.
    - deleted 13y ago
      [deleted]
    - InclinedPlane 13y ago
      Fresh already delivers a lot more than just groceries. Plenty of common durable goods like dvds and video games, for example.
  - cm2012 13y ago
atopuzov 13y ago
One more proof that Amazon is a retail company and not a technology company (only technology is allowed is for the retail sake).
mathattack 13y ago
When you really need something, there is a premium for shipping within hours. Whether it's diapers or a six pack of beer, speed matters. This is a huge pivot from Amazon, which was previously won on price and size of catalogue. Note - If Amazon gets licensed for beer and can deliver it in hours, game over for a lot of players!
- wikwocket 13y ago
  Also for diapers... I know you were being facetious, but speaking as a parent, a company that can deliver diapers and formula within a few hours is going to get a lot of immediate attention and devotion!
  - cm2012 13y ago
    Amazon owns Diapers.com, btw.
    - mathattack 13y ago
      I wonder if they bought it with instant delivery in mind. I assume someone in HN should have insight into how integrated their back ends are.
  - tgcordell 13y ago
    Amazon provides the subscribe and save service to fill this need. You can set up the frequency of delivery and the quantity of units and never have to worry. They give you a nice discount on the order if you do it this way as well
    - mathattack 13y ago
      The issue isn't about planning. It's, "Holy Sh*t, the baby just pooped 3 times in an hour, and I have 1 diaper to hold me until tomorrow" When that last diaper goes, instant service is at a premium.
    - wikwocket 13y ago
rogerbinns 13y ago
I do wonder what is going on with Amazon shipping. For my orders over the last year, by far the longest time is spent not shipping. The status will say "shipping now" for several days. Once actually in package service it is quick. I use the "free" shipping. I'd guess that they process Prime members shipping before the free shipping. And I'd suspect some of the waiting is time to ship from the manufacturers to Amazon's warehouses. I also wonder if they transfer long tail items between warehouses to consolidate orders. There is speculation that Amazon intentionally delays free shipping orders to push people towards Prime. Maybe they just have capacity problems? By comparison with other vendors like Walmart I usually see shipping in less than 24 hours. Amazon forum complaining about slow shipping, people getting Prime stuff a lot faster, no response from Amazon people: http://www.amazon.com/Super-Slow-Shipping/forum/Fx4HQD057HT5OQ/TxRFEIDS67V903/1/ref=cm_cd_pg_oldest?_encoding=UTF8&asin=B000MG3LDA&authToken=&cdSort=newest http://www.amazon.com/Super-Slow-Shipping/forum/Fx4HQD057HT5... Giving credit to Prime members to accept slower shipping: http://www.geek.com/news/amazon-prime-customers-receiving-credit-for-accepting-slower-shipping-1529819/ http://www.geek.com/news/amazon-prime-customers-receiving-cr... Another random example complaint: http://www.pissedconsumer.com/reviews-by-company/amazon/very-slow-free-shipping-and-delivery-20120718332793.html http://www.pissedconsumer.com/reviews-by-company/amazon/very...
- jquery 13y ago
  It's probably sitting in a big truck somewhere that only leaves once it's full, to minimize cost. If shipping speed is important to you, perhaps you should pony up.
  - rogerbinns 13y ago
    You've missed the point. The experience with other retailers seems to be quick dispatch of items to the shipping service. The article is claiming massive warehouse investments by Amazon, yet that is somewhat at odds with shipping non-Prime items slowly. It would seem somewhat strange to deliberately ship slowly to push Prime upsells since that hands things to competitors, and is only doable if you are close to a monopoly. It is possible that trailers (not trucks) are sitting around until full but that takes up space. They also generate the tracking id before it goes into a trailer, and you usually see less than 24 hours before it arrives somewhere outside the warehouse. I doubt there is any benefit to letting trailers fill up over several days. The shippers also use regional distribution centers so there isn't a need to have a full trailer, although full pallets would make sense. However Amazon should be able to fill those in a few hours. Here is an article from 2008 about a Newegg distribution centre. Note that several trailers a day were filled. http://www.anandtech.com/show/2531/7 http://www.anandtech.com/show/2531/7 And another from last year explaining how the warehouse is almost empty moving stuff as quickly as possible. http://www.stores.org/STORES%20Magazine%20May%202012/newegg-goes-diet http://www.stores.org/STORES%20Magazine%20May%202012/newegg-...
snarfy 13y ago
If they didn't spend the money on growth it would count as profit and they'd have to pay taxes on it.

119 points by hkimura 13y ago

zeckalpha 13y ago

Interesting that they complain about Amazon's operating margins. Isn't the consensus that it is intentional?

notatoad 13y ago
That's just what financial reporters do. Whether the margins are intentional or not, they're still information that bloomberg readers want to know about.
- zeckalpha 13y ago
  Bloomberg readers should want to know why, rather than assuming that Amazon is actually trying to increase it's profits, like most companies. It could have been discussed in this article.
smackfu 13y ago
Yes, the article is written as if Amazon is compelled to take this action, and as a result their margins will suffer. But it's more like Amazon chooses to take this action, and doesn't care if it impacts their margin.

saosebastiao 13y ago

> The warehouse strategy carries risk. Fulfillment has become Amazon’s top operating expense, squeezing profit margins and contributing to a $39 million loss at the Seattle-based company last year. Not building warehouses carries more risk.

Swannie 13y ago
39M USD loss is a token loss, too. Cost of building, staffing and operating a warehouse is going to be far in excess of that.

hkimura 13y ago

Yeah, slow and steady growth...

ceejayoz 13y ago
Amazon's never been about "slow and steady" growth. They've been about long-term growth at the expense of short-term profit.
- ihsw 13y ago
  Or, more to the point, using their dominance and abundance against their competitors. They may have razor thin margins, but that's only because they're leveraging their pricing to cut into the margins of their competitors. Lower prices here and there, raise them elsewhere to offset the cost. Their accounting department definitely has to be kept on their toes, especially to make sure things don't fly off the handle too much.
  - chris_mahan 13y ago
    Amazon: Fast, Cheap, and Good: Pick all three. They've really delivered. I've tried to not like Amazon, but they keep impressing with their fast service, availability, low price.
    - g4m8i7 13y ago
      Exactly. When Rise of the Warrior Cop came out, I wanted to pick it up on release day. None of the local bookstores had it in stock, but all were happy to order it for me. It would have taken them all 4-5 business days. I went to Amazon that night, and with Prime, I got it in 2 days, for about $10 less than the local brick and mortar stores. How can anyone compete with that? Especially if they build out their same-day service?
      - ericd 13y ago
        Yeah, I think same day will strike a complete death blow for retail if they can pull it off well.

JonFish85 13y ago

From the Instacart CEO: "We don’t have to build warehouses, lease a fleet of trucks or manage perishable inventory, which substantially reduces our operational cost." If they guarantee delivery in 2 hours and they don't have these costs, they're paying someone else who has these costs, right? How can they really be a competitor to Amazon, then? I have to think that Amazon is operating on such razor-thin margins precisely because they think they can do a much better job than using someone else.

rgarcia 13y ago
They pay their delivery people. They're a competitor to Amazon in that they've traded the operational cost of warehouses for the risks associated with crowdsourcing (quality control, etc.). Amazon probably perceives the risk of crowdsourcing as too high, or at the very least it's outside of their operational "comfort zone".
- JonFish85 13y ago
  But they're entirely different (to me). They essentially exist on top of other companies' operational costs of warehousing, trucks, etc, so those costs PLUS a profit (presumably) are built into Costco / Trader Joe's / whoever else they source from. They're a glorified courier system, it seems. If that's true, they're less a competitor to Amazon and more a competitor to FedEx / UPS / USPS.
deleted 13y ago
[deleted]
samstave 13y ago
I imagine that they are really the Uber in this area... They provide a good flexible service ontop of existing infrastructure at a premium cost to users. While that's just fine - I would love to see a service that lowers the cost to me as a consumer for food. Actually, let me rephrase that: I, personally, need a service that helps me reduce the amount of food I waste. With a family of (5) in my household, we waste a lot of food - and it drives me nuts. I hope that something along the lines of Blue Apron could help me throw out less/buy less.

ChuckMcM 13y ago

It is an interesting vote against local manufacturing. There is a small number of people who are betting that the 'future' won't be warehouses so much as they will be small 'build on demand' factories which create the item you ordered, when you order it. When you consider the 27.5yr depreciation life of this sort of physical plant you might guess that Amazon is betting against some sort of 'kindle' equivalent for goods (i.e. Shipping the information rather than the good itself)

notatoad 13y ago
I don't think you can really draw that conclusion. Even if local build-on-demand factories end up entirely replacing shipped goods, 27.5yrs is probably pretty close to a minimum timeline for that happening. Any huge systemic shift in the nature of physical goods like that will take a very long time.
stevenrace 13y ago
While I'm in favor of CNC'ing things on demand, it's doesn't scale very well. Machine time adds up - multiple tooling, batch processes like cleaning/finishing/painting,etc. 'The Market' seems to agree, as warehouse buildout (and purchasing) is booming right now - as it seems more economical to produce things in large runs and then hoard them in port cities like LA,New Orleans, Memphis, etc...
- InclinedPlane 13y ago
  Nobody's attempted to build a fully automated, general purpose(ish) factory yet. I'm sure there'll be plenty of complexities and limitations, but there are limits and complexities with existing systems that we've just accepted as "the way things are". I'm fairly confident that general purpose automated manufacturing will become a reality and will be transformative, but I doubt it will completely take over the market. I'm pretty sure there'll be room for both.
cm2012 13y ago
The jewelry business I worked for had a mix of this. All the jewelry started out as a casting, to which a gemstone was added, most of the time after the product was ordered (made to order). However, we also used FBA extensively for the most common builds.

cm2012 13y ago

I enjoyed this article and found it illuminating. I work with a number of manufacturers (in jewelry, apparel, furniture, watches, etc.) who sell using Amazon Warehouses (the FBA program). Already, before the new warehouses, it smokes competitor warehouses that I've tried in terms of time and reliability. 52% of Amazon non-media sales come from 3rd party sellers like the companies I work for, last I checked. Some trends I think will come soon from Amazon FBA: 1) When Amazon perfects daily grocery delivery it will change the whole ballgame for UPS and USPS. Amazon will cut them out of the picture. I think the cost of shipping furniture especially will plummet. 2) Amazon launched FBA Export a while back to let merchants fulfilling through FBA U.S. ship anywhere in the world easily. Right now only a few SKUs are eligible, but they are working to expand this program ASAP. In a year or two, a ton of products on Amazon U.S. will be available anywhere. 3) A lot of mainstream people don't know but Amazon warehouses don't just ship to Amazon customers. Merchants can enable multichannel shipping for a price ($6 compared to $2.50 for Amazon orders), so a lot of eBay sellers, Rakuten sellers use FBA to fulfill.

swang 13y ago
How does Amazon perfecting daily grocery delivery relate to shipping furniture costs plummeting?
- kirubakaran 13y ago
  The delivery infrastructure they build for grocery delivery can be used to deliver other things later.
  - deleted 13y ago
    [deleted]
  - InclinedPlane 13y ago
    Fresh already delivers a lot more than just groceries. Plenty of common durable goods like dvds and video games, for example.
- cm2012 13y ago

atopuzov 13y ago

One more proof that Amazon is a retail company and not a technology company (only technology is allowed is for the retail sake).

mathattack 13y ago

When you really need something, there is a premium for shipping within hours. Whether it's diapers or a six pack of beer, speed matters. This is a huge pivot from Amazon, which was previously won on price and size of catalogue. Note - If Amazon gets licensed for beer and can deliver it in hours, game over for a lot of players!

wikwocket 13y ago
Also for diapers... I know you were being facetious, but speaking as a parent, a company that can deliver diapers and formula within a few hours is going to get a lot of immediate attention and devotion!
- cm2012 13y ago
  Amazon owns Diapers.com, btw.
  - mathattack 13y ago
    I wonder if they bought it with instant delivery in mind. I assume someone in HN should have insight into how integrated their back ends are.
- tgcordell 13y ago
  Amazon provides the subscribe and save service to fill this need. You can set up the frequency of delivery and the quantity of units and never have to worry. They give you a nice discount on the order if you do it this way as well
  - mathattack 13y ago
    The issue isn't about planning. It's, "Holy Sh*t, the baby just pooped 3 times in an hour, and I have 1 diaper to hold me until tomorrow" When that last diaper goes, instant service is at a premium.
  - wikwocket 13y ago

rogerbinns 13y ago

I do wonder what is going on with Amazon shipping. For my orders over the last year, by far the longest time is spent not shipping. The status will say "shipping now" for several days. Once actually in package service it is quick. I use the "free" shipping. I'd guess that they process Prime members shipping before the free shipping. And I'd suspect some of the waiting is time to ship from the manufacturers to Amazon's warehouses. I also wonder if they transfer long tail items between warehouses to consolidate orders. There is speculation that Amazon intentionally delays free shipping orders to push people towards Prime. Maybe they just have capacity problems? By comparison with other vendors like Walmart I usually see shipping in less than 24 hours. Amazon forum complaining about slow shipping, people getting Prime stuff a lot faster, no response from Amazon people: http://www.amazon.com/Super-Slow-Shipping/forum/Fx4HQD057HT5OQ/TxRFEIDS67V903/1/ref=cm_cd_pg_oldest?_encoding=UTF8&asin=B000MG3LDA&authToken=&cdSort=newest http://www.amazon.com/Super-Slow-Shipping/forum/Fx4HQD057HT5... Giving credit to Prime members to accept slower shipping: http://www.geek.com/news/amazon-prime-customers-receiving-credit-for-accepting-slower-shipping-1529819/ http://www.geek.com/news/amazon-prime-customers-receiving-cr... Another random example complaint: http://www.pissedconsumer.com/reviews-by-company/amazon/very-slow-free-shipping-and-delivery-20120718332793.html http://www.pissedconsumer.com/reviews-by-company/amazon/very...

jquery 13y ago
It's probably sitting in a big truck somewhere that only leaves once it's full, to minimize cost. If shipping speed is important to you, perhaps you should pony up.
- rogerbinns 13y ago
  You've missed the point. The experience with other retailers seems to be quick dispatch of items to the shipping service. The article is claiming massive warehouse investments by Amazon, yet that is somewhat at odds with shipping non-Prime items slowly. It would seem somewhat strange to deliberately ship slowly to push Prime upsells since that hands things to competitors, and is only doable if you are close to a monopoly. It is possible that trailers (not trucks) are sitting around until full but that takes up space. They also generate the tracking id before it goes into a trailer, and you usually see less than 24 hours before it arrives somewhere outside the warehouse. I doubt there is any benefit to letting trailers fill up over several days. The shippers also use regional distribution centers so there isn't a need to have a full trailer, although full pallets would make sense. However Amazon should be able to fill those in a few hours. Here is an article from 2008 about a Newegg distribution centre. Note that several trailers a day were filled. http://www.anandtech.com/show/2531/7 http://www.anandtech.com/show/2531/7 And another from last year explaining how the warehouse is almost empty moving stuff as quickly as possible. http://www.stores.org/STORES%20Magazine%20May%202012/newegg-goes-diet http://www.stores.org/STORES%20Magazine%20May%202012/newegg-...

snarfy 13y ago

If they didn't spend the money on growth it would count as profit and they'd have to pay taxes on it.