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Investment in Distribution a Priority for Amazon

Amazon’s ability to provide quick delivery has been a long-time selling point, but that doesn’t come without costs.

During the second quarter of 2016, Amazon spent $3.88 billion on its distribution network, or “fulfillment,” a 35 percent increase from the year prior, according to ABC News. In 2015, the company spent $13.41 billion on fulfillment, which was a 25 percent increase from 2014.

“Costs to ‘fulfill’ products is one of their largest expenses, and they’re always trying to figure out how to manage it better,” R.W. Baird analyst Colin Sebastian told ABC News. “In the long term, creating more infrastructure for transportation and delivery will help drive more efficiency, but it adds to costs in the near term.”

Amazon delivered an estimated 1 billion packages in 2015, according to ABC News. This number equates to the same number of packages FedEx delivered three years earlier for all of its customers. To accommodate this parcel volume, the e-commerce giant is continuing to build out its distribution centers and open new fulfillment centers.

“Amazon is building more infrastructure in the third quarter ahead of the busy holiday season. By the end of September, it plans to have added 21 new global fulfillment centers in 2016; at the same point in 2015, it has added only 10,” according to ABC News.

Amazon is also continuing to focus on new delivery methods. In addition to its continuous testing with drones, Amazon has also leased 40 cargo planes from Boeing and Atlas Air to “create an air cargo network.”

About Hilary Welter

As marketing and research coordinator, it’s Hilary’s duty to keep retailers informed about NRHA products and services and to help coordinate industry research projects. Additionally, Hilary is the voice behind NRHA’s and Hardware Retailing’s social media accounts. She appreciates a good book, spicy food, well-made horror films, craft beer and exploring new places near and far.

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