So much for too much fulfillment space at Amazon.
You may recall that in 2022 through much of 2023, there were a number of reports that Amazon was sort of pulling back on its logistics space following an almost hard to believe expansion of multiple types of facilities after the start of the pandemic in 2020.
Amazon was reported to be subletting excess space in some markets, while it cancelled or delayed a number of planned facilities.
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At the same time, Amazon and Walmart are both operating at a scale that is hard to fathom – both around 4 billion items delivered same/next day annually. |
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As the news came out, Amazon CEO Andy Jassy acknowledged the company had gotten a little too far over its skies in terms of both space and people.
I’ll say. Ponder this: Amazon doubled the size of its already massive fulfillment network in 24 months during the pandemic, as on-line order volumes soared.
But the capacity discipline didn’t last long, fueled by a death match between Amazon and Walmart, and related to that the push for more same day and next day deliveries.
According to a recent article on the matter from the Wall Street Journal and reporter Liz Young, “The e-commerce market leader is buying up industrial property and restructuring its sprawling distribution network as it looks to speed up package delivery and cut shipping costs.”
In part, that means Amazon is back in the business of aggressively adding fulfillment space. According to consulting firm MWPVL, which tracks Amazon’s logistics real estate, so far this year has leased, bought or announced plans for more than 16 million square feet of new logistics space in the US.
That is on top of the company’s existing footprint of about 413 million square feet of logistics real estate across North America at the end of last year.
The driver: faster and less expensive shipping to customers.
Over the past couple years, Amazon has been periodically touting the growth in its Prime customers’ orders that are delivered same or next day. For example, a recent company blog post noted that same day/next day Amazon shipments in the US rose by more than 65% in the fourth quarter of 2023 compared with the previous year. That represented an incredible 4 billion items last year.
What the article pointed out – and I did not know – is that Walmart is on par or ahead of Amazon in this metric, with 4.4 billion items the delivered same or next day in the US over the 12 months ended in April. That surprised me.
It’s also interesting in that Walmart is using its vast store network drive the rapid deliveries, while Amazon, largely without stores outside its Whole Foods grocery chain, must find another way.
Most of Amazon’s resulting logistics network strategy has been well published.
Over the past year or so, it has revamped the its long-time domestic shipping network that used a highly centralized approach “that essentially treated its national distribution network as an enormous warehouse serving the entire country,” and which is giving way to nine regions designed to operate self-sufficiently,” the Journal reported.
I will note the first reports of this strategy referred to creating eight regions, now apparently expanded to nine.
“We realized that how we place items when they come in from sellers and vendors is really important, and if we can place those items at facilities that are closest to customers upfront, it allows us to offer both fast speeds and lower our cost to serve,” Udit Madan, vice president for worldwide operations at Amazon, told the Journal.
 Amazon has also said it plans to double the number of same-day fulfillment sites it operates, which carry a smaller assortment of high demand SKUs prepared for delivery within hours to customers in dense population centers.
Amazon has also been opening more space to use as delivery stations, where contract Amazon drivers pick-up their orders for the day. Those sites are typically under 100,000 square feet.
Something that was news to me: as part of the network revamp, Amazon has been opening sites it calls “inbound receiving centers” that store large numbers of goods. These facilities typically range from about 600,000 square feet to more than 1 million square feet.
I take them to be replenishment facilities that feed the smaller local sites.
My takeaway: It is not surprising that Amazon is back to logistics network growth mode – it’s in its DNA.
At the same time, Amazon and Walmart are both operating at a scale that is hard to fathom – both around 4 billion items delivered same/next day annually. I will note the metric is about “items,” I assume to capture multi-line orders.
Another note: Amazon just received FAA permission for drone deliveries without its former “line of site” operator requirements.” With that obstacle removed, drones will now be placed in Amazon’s same day arsenal.
So I guess we just keep marching along until Amazon invents a Star Trek teleporter and we move to “same hour” delivery.
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