The e-commerce giant, Amazon Inc, is planning to allocate billions of dollars for its warehouse and delivery system upgrade. The news came after Amazon revealed a forecast for lower sales growth on Friday. Both news further slowed down its shares.
Amazon is scrambling to meet demand. Amidst its efforts to do so, shoppers venturing outside the home is taking back sales trajectory to pre-lockdown level.
Amazon struggled with its storage last year as the company had limited people and space to fulfil goods safely in its warehouses. According to Andrea Leigh, vice president at e-commerce optimization firm Ideoclick and former Amazon employee, Amazon is still catching up with the issue even a year later.
“Amazon is running out of available space,” she said. “They’re also running out of labor.
Over the past 18 months, Amazon has doubled its warehouse and transportation network. Despite all the efforts, Amazon plans to continue its expansions in the future, including hiring and training staff. Moreover, to attract employees, Amazon needs to raise wagers early and add signing bonuses due to the tight labour market.
Additionally, Amazon is aiming to achieve its one-day Prime deliveries target in the United States. Quoted from Reuters, Chief Financial Officer Brian Olsavsky told analysts on Thursday, “This is all part of a multi-year investment cycle for us.”
As for Amazon’s shareholders, the company will stick to its strategy to capture long-term gains at the risk of near-term profit. This playbook has been deployed for over 27 years, which oftentimes test Wall Street’s patience.
“Slower growth & increased investments make the shares more challenging,” JPMorgan analysts commented through a note.
Amazon’s plan for the coming years is to add 517 facilities to its global distribution infrastructure, logistics consultancy MWPVL International revealed. This translates into additional 176 million square feet over the 402 million Amazon already controls.
While Amazon gave no exact number on the estimates, the infrastructure rollout is said to have been ramped up. Since last year, Amazon reported a 74% swell in capital expenditures and equipment leases to $54.5 billion. The figure is nearly twice bigger than the growth rate a year ago.
This is highly likely to be par for the course for a $17.7 trillion retailer that aims to get bigger. In relation to this, Credit Suisse analysts agree that Amazon’s plan to focus on capital expenditures over revenue guidance is more important.
“The consumer responds positively to higher/faster service levels,” they said in a note. “Unit volume accelerated following one day Prime delivery launch in 2Q19 – we believe it is only a matter of time before we see a similar impact as Amazon deploys fulfillment assets into the Holidays.”