Why Amazon Now Has An Excess Of Warehouse Space, And What It Plans To Do About It In The Future

Amazon spent an additional $2 billion in the first quarter responding to the problems posed by the epidemic by expanding its storage capacity quicker than it needed.

Yet even in hindsight, there isn’t much else Amazon could have done, given the extraordinary demand and uncertainty the company was experiencing, said Chief Financial Officer Brian Olsavsky of Amazon on calls with reporters and analysts on Thursday following Amazon’s quarterly earnings report, he said.

Costs were a major factor in the company’s disappointing third quarter, which fell far short of Wall Street’s estimates. On Thursday, after-hours trading saw Amazon’s stock drop by more than 10 percent.

Olsavsky told analysts, “We’ve come out of a very turbulent two years.” Over the past two years, we’ve been pleased with our judgments. And now we have the opportunity to adjust our capacity to a more regular demand pattern.”

Consumers are less reliant on Amazon for important purchases as COVID-19’s Omicron variant fall signals a turning point in this pandemic. Amazon’s online sales for the quarter declined 3% to $51 billion.

Although Amazon anticipates that sales will eventually catch up to capacity, Olsavsky added. Between now and then, Amazon says it will reduce the rate of adding new warehouse space.

For the first time, Amazon has announced a “Buy with Prime” program that serves e-commerce sites that aren’t affiliated with Amazon.com, which could put the business in direct competition with UPS and FedEx.

A company that earned $18.4 billion in sales in the first quarter is comparable to what Amazon did with Amazon Web Services, which used its internet skills and cloud infrastructure as a starting point.

In the last several years, the corporation has invested heavily in developing its delivery network, known as “AMZL,” which relies on a network of specialized Amazon Delivery Service Partners and reduces its reliance on third-party delivery providers like UPS and the US Postal Service.

Based on yearly SEC filings, Amazon is expected to grow its fulfillment network and data center facilities (owned and leased) from 272 million square feet in 2019 to 525 million square feet in 2021. The data centers are not broken out in the papers as a separate fulfillment footprint.

A year-over-year growth of 39% that Amazon saw in its consumer business in 2020, according to CEO Andy Jassy, “necessitated doubling the size of our fulfillment network that we had built over Amazon’s first 25 years — and doing so in just 24 months,” according to the company’s earnings release today.

Connected Message

Amazon’s shares fell 10% after the company reported its first-quarter profits because of rising expenses and supply chain pressures.

Because new facilities need to be planned for years in advance, this presents a major difficulty for Olsavsky. They cannot be placed on hold until the corporation better understands demand.

Olsavsky told reporters, “We committed to as much as we could handle the amount that we observed.” “We didn’t want to be confined in any way. It took us until the second quarter of last year, despite our best efforts, to feel comfortable moving forward. Then, in the fourth quarter of last year, we added more warehouses to prepare for the peaks.”

According to Olsavsky, the capacity will begin to better meet demand with Prime Day in the third quarter of this year, followed by the peak Christmas shopping season in the fourth quarter.

Joseph Watson

Learn More →