As a sign of urgency to get its products to customers more quickly and easily because of rising competition from EBay and Wal-Mart, Amazon is stepping up its warehouse building spree, according to reports. With a lot more space and state of the art technology, the new warehouses make it easier to find products and get them shipped to customers.
The speed of constructing the new warehouses has improved drastically. On average, it has taken two years to construct a warehouse. The facility in Chattanooga, Tenn., which opened in 2011, was constructed in only 10 months. Since 2010 the company has spent $13.9 billion on building warehouses. That brought the total to 89 warehouses at the end of 2012. The company has announced their plans to construct five more warehouses in the U.S. this year.
The warehouse strategy is not risk free. Fulfillment is currently the most expensive operating expense for Amazon, which has resulted in tight profit margins. Reports indicate it contributed to a $39 million loss for the company last year. The spending is actually crimping Amazon’s margins. The company’s 12-month operating margin of .95 percent drops it down to the bottom three percent of peers in S&P’s 500 Index. This is even though the company ranks among the top 10 percent of its group when basing it on sales, according to Bloomberg’s compiled data.
The price tag associated with Amazon’s warehouses is set to increase. A company announcement last month said they plan to add more than 5,000 full-time jobs in 17 warehouses across the U.S. The company already has 20,000 warehouse employees. In addition, the company plans to add 2,000 more jobs in its customer service department, including part-time and seasonal positions. The warehouse boom for Amazon kicked off in 2011, when it agreed to start collecting online sales tax in more states. Before that time, the company intentionally avoided setting up warehouses in some states because the physical footprint triggered sales tax to be collected from consumers.
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