Amazon resumes buying logistics property but Shein lurks in the background


A report in the Wall Street Journal headlined “Amazon Is Reviving Its Logistics Expansion and Reshaping Its U.S. Distribution” claims to describe how Amazon is re-engineering its logistics network. The WSJ asserts that Amazon is “buying up industrial property and restructuring its sprawling distribution network”. The article states that just this year Amazon has “leased, bought or announced plans for more than 16m sq. ft of new warehouse space in the U.S.” quoting the consultancy firm MWPVL International, adding that this adds “to the company’s existing footprint of roughly 413m sq. ft of industrial real estate across North America”.

The WSJ makes an argument that Amazon is creating a less centralised logistics system designed to improve the speed of response to customer orders. An Amazon executive is quoted as saying if products can be located “at facilities that are closest to customers upfront, it allows us to offer both fast speeds and lower our cost to serve”.

It is hard not see this strategy as a continuation of the de-centralised strategy that the company has been pursuing for a number of years. Ever since the introduction of the ‘Prime’ membership initiative Amazon has been seeking to emphasise speed of response to customer orders. Choosing this option it has sacrificed some of the cost advantages of inventory centralisation, however such is the size of inventories at Amazon and the speed of their turnover that the economies of scale are still likely to be very substantial.

The expansion of Amazon’s property infrastructure does seem to be substantial, however, it should be remembered that Amazon sales are also growing substantially, possibly in low double-digit percentages. Although it did suffer a fall-back in the rate of growth in sales at the end of 2022, it has since grown better than the US e-retail market in general. The present expansion in warehousing and fulfilment centre capacity may just be a resumption of this growth trajectory.

What has changed for Amazon is the entrance into both the US market and other non-Chinese markets of Shein and Temu. It is hard to assess the economic sustainability of these businesses, but the focus on cheap products sent through existing logistics systems, including postal systems, has delivered a powerful presence in the market extraordinarily quickly. These competitors have grown not by worrying about warehouse design but by focusing on selling products through mobile phone apps. Perhaps they will fail in the long run, however, they are a reminder that despite its size, Amazon does not have the market to itself. 

Author: Thomas Cullen

Source: Ti Insight

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