The No. 1 e-retailer will operate 54 U.S. distribution centers by fall.
Scot Wingo is such an Amazon geek that he claims to know many of the three-letter acronyms Amazon.com Inc. gives to its distribution centers. The CEO of ChannelAdvisor put his Amazon expertise on display today, and what he reported won’t give much comfort to Amazon’s competitors.
Wingo told attendees at the opening of his company’s annual Catalyst client conference in Las Vegas that by the holiday season Amazon.com, No. 1 in the Internet Retailer Top 500 Guide, will be operating 102 distribution centers around the world, including 54 in the U.S. He says Amazon currently operates 46 distribution centers in the U.S., and is building eight more; outside the U.S., the big e-retailer now operates 43 warehouses, with five due to come online before year’s end. International sales accounted for 41.5% of Amazon’s revenue in the first quarter of this year.
What’s more, Amazon’s warehouses are getting bigger and more automated. Wingo says Amazon’s first warehouses were 200,000 square feet and then 500,000 square feet; now each Amazon distribution center covers 1 million square feet, or 22 acres. The 102 Amazon fulfillment centers that will be operating by the holiday season will total 70 million square feet.
And they will be increasingly automated, as Amazon makes use of the Kiva robotic systems for picking and moving product around warehouses. “Pretty soon it will be robots delivering the products to humans,” Wingo said.
Amazon did not immediately respond to a request for comment.
The dramatic expansion of Amazon’s fulfillment center network is one of two reasons why Amazon’s financials have displayed a trend that, Wingo says, puzzles Wall Street analysts: Amazon’s sales growth is slowing, but its profit rate is increasing.
One reason is that Amazon’s fulfillment centers are closer than ever to more consumers, which means the e-retailer can deliver orders at lower cost. Amazon now has a fulfillment center within five miles of most major metropolitan areas. “They only pay for five-mile delivery,” Wingo says. “This is why their shipping costs going down.”
The other reasons for Amazon’s growing profit rate, Wingo says, is that more of its revenue is coming from the commissions Amazon takes when other merchants sell on the Amazon marketplace. Wingo says Amazon takes a 10-15% commission on each sale by the more than 2 million outside retailers that sell on Amazon.com, while the huge scale of Amazon’s computer network means that hosting the online marketplace costs Amazon little per sale. Amazon’s profit on its own sales are lower, which means that as third-party sales becoming an increasing part of Amazon’s business its profit rate increases, Wingo says.
Wingo noted that many of those in the audience—ChannelAdvisor says 1,000 people are expected at Catalyst this year—are third-party sellers that contribute to Amazon’s profits. ChannelAdvisor, founded in 2001, says it helps some 2,000 retailers and manufacturers sell online through marketplaces like Amazon and eBay.com, comparison shopping engines, and paid search marketing. ChannelAdvisor recently announced plans for an initial public offering of its stock.
As part of the annual Catalyst event, ChannelAdvisor also unveiled the spring release of updates to its service. Link Walls, vice president of product management, outlined the enhanced services that include: