The position revealed by Amazon in its annual results released last week was familiar enough. Huge investment in physical infrastructure and new logistics services depressing profits at the retail operation with performance supported by its cloud server business.
Certainly the volume of physical items sold by Amazon is buoyant. Splitting out its media and physical e-commerce activities, it can be seen that sales at the former rose by 7% over the financial year 2016, however “Electronics and General Merchandise” sales increased by 25% in North America, whilst they grew by 24% in its ‘International’ segment. Yet the ‘International’ segment remains firmly loss-making, with the last quarter seeing a negative operating income of $487m.
The big problem that Amazon is facing on the logistics side is the continued increase in ‘shipping costs’. These are up 35% for the year, which is hardly surprising bearing in-mind that the directly employed workforce has grown by 48% to 341,000 people.
At the group level net sales for the year were up 27% to US$136bn whilst operating income almost doubled at $4.2bn. But, as usual, the running in terms of profits was done by the AWS server business which saw income up 60% over the year, hitting $3.1bn on sales of $12.2bn. Operating income for the whole group was only $4,186 on sales of $135,987bn.
Amazon is still a logistics network under construction. The core North America business delivers a respectable 5% return on sales but the ‘International’ business drags this down. There needs to come a point when capital expenditure is moderated and the in-house logistics infrastructure delivers its reduction in the cost of fulfilment, however Amazon is still quite some way away from this. Indeed, judging by the company’s recent project announcements the pace of development is increasing, with fulfilment centre space up by a third in 2016. Bearing in-mind at some-point it will have to replicate the density of network seen in North America elsewhere in the world.
Source: Transport Intelligence, February 7, 2017
Author: Thomas Cullen
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)