Amazon Needs More Warehouses To Buck Its Slowdown Forecast

Billions of dollars is still needed to be spent by Amazon.com Inc for expansion of its warehouses and its delivery systems. However that could put more pressure on the company’s shares which dropped by 7 per cent on Friday after the largest e-commerce company of the world forecast slowdown in its sales growth.

The e-retailer is still pushing hard to cater to increased demand even though customers are now stepping out of the homes more and the sales trajectory of the company is returning to pre-lockdown levels.

According to Andrea Leigh, vice president at e-commerce optimization firm Ideoclick, who is also a former Amazon employee, Amazon was forced to turn away goods from its warehouses last year because of a shortage of staff and spaces for filling up the warehouses safely. And the company is still trying to catch up to that demand, Leigh said.

“Amazon is running out of available space,” she said. “They’re also running out of labor.”

There is need for more investments in the near future form Amazon even though the company has invested heavily in the previous 18 months to double its capacity for warehousing and transportation network. Additional investments will also need to be made in hiring and training staff.

Amazon was forced to hike wages early because of a tight labor market while also signing bonuses to attract full and part-time employees. The total number of employees of company now stands at about 1,335,000.

Amazon is also now ready to meet its goal of one-day Prime deliveries in the United States.

“This is all part of a multi-year investment cycle for us,” Amazon’s Chief Financial Officer Brian Olsavsky told analysts Thursday.

One of the spending strategies of Amazon is to spend to capture long-term value while ignoring profits in the short term, which is a concern for investors, and is a strategy that the company has followed for the past 27 years – sometimes even testing the patience of its investors and analysts. .

“Slower growth & increased investments make the shares more challenging,” JPMorgan analysts said in a note.

According to logistics consultancy MWPVL International, a total of 517 facilities to its global distribution infrastructure is planned to be added by amazon in the coming years. That would provide an additional 176 million square feet to of storing space to the company over and above the 402 million square feet it already has.

No comments on the number were available from Amazon.

The company however is already ramping up its infrastructure rollout. There has been an increase of 74 per cent in the company’s capital expenditures and equipment leases to $54.5 billion over the past 12 months which is double the growth rate for the previous year. 

“The consumer responds positively to higher/faster service levels,” they said in a note. “Unit volume accelerated following one day Prime delivery launch in 2Q19 – we believe it is only a matter of time before we see a similar impact as Amazon deploys fulfillment assets into the Holidays.”

(Adapted from Reuters.com)



Categories: Economy & Finance, Entrepreneurship, Strategy, Sustainability, Uncategorized

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