Amazon will spend less on fulfillment projects this year than last year, while transportation investment will be flat to slightly down.
Amazon will spend less on fulfillment projects this year than last year, while transportation investment will be flat to slightly down.
In recent years, Amazon.com Inc has spent billions of dollars on new warehouses that are eating away at profits, telling investors it has no choice but to meet ever-increasing consumer demand.
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It turns out Amazon may have built too much too soon, analysts say.
The world’s largest online retailer on Thursday reported $2 billion in additional costs from excess fulfillment and shipping capacity, a dramatic change from two years ago when Amazon had to turn down retailers’ goods because it only had room for essentials had supplies.
The company is lowering its capital spending plans for 2022, its chief financial officer Brian Olsavsky said. Amazon will spend less on fulfillment projects this year than last year, while transportation investment will be flat to slightly down.
The new reality began to emerge in mid-2021. Amazon was on track to double its warehousing and delivery network, a feat required as consumers embrace home shopping to avoid in-store COVID-19 infections. For the first time, space wasn’t the retailer’s primary constraint; It was work to fully staff the facilities. At Amazon’s level, that meant hiring 270,000 people in six months.
As always, consumer demand eased after the Christmas holidays. Online sales fell year-over-year, Amazon’s results showed. After the Omicron wave subsided, brick-and-mortar stores lured shoppers, and still others were faced with the choice between buying goods and filling their cars with expensive gasoline. According to Amazon, the order patterns have remained the same.
Still, Olsavsky told reporters the company appears “overbuilt for current demand.” He said Amazon has no regrets, later telling analysts, “A lot of the build decisions were made 18-24 months ago, so there are limitations on what we can adjust mid-year.”
David Glick, a former vice president of Amazon who’s now chief technology officer at on-demand fulfillment company Flexe, said extra space isn’t much of a challenge.
“Amazon may have made some progress on fulfillment capacity, but they will grow into that overcapacity over the course of the next year,” he said. A new program for Amazon to store and ship goods that independent retailers sell directly to consumers, known as Buy with Prime, could also help.
Amazon will eventually need these warehouses, agreed Wedbush Securities analyst Michael Pachter. But Amazon’s disclosure offered little consolation.
“Didn’t they see this coming when they built all these logistics centers?” Pachter asked, noting how Amazon doubled its capacity over two decades in just 24 months. “Why not in 48?”
Operating income fell 59% to $3.7 billion in the first quarter, while a decline in Amazon’s stake in electric vehicle maker Rivian led to the company’s first net loss since 2015.
