Amazon’s design gives it big holiday buying advantage
Seattle — When the economy sputtered with the coronavirus pandemic’s spread this spring, unemployment surged as employers laid off workers by the thousands.
Amazon took a different tack, hiring 400,000 workers to stow, sort, pick, pack and deliver goods from its warehouses across the country, and pushing its total employee count over 1.1 million people.
It didn’t stop there. The e- commerce giant leased 12 Boeing 767-300 cargo aircraft, bringing its air fleet above 80 jets. It added 220 package facilities since the start of the year, ranging from urban delivery stations to giant warehouses, according to an industry consultant.
Amazon used the crisis, when prices on everything from commercial real estate to cargo jets plummeted, to amass an empire already beginning
“We hit the stores 3 a.m., 4 a.m., rain, snow, me with a broken leg ... didn’t matter, we weathered it all. This year, we can’t take the chance. I’m so sad about it, but I know it’s what needs to be done.”
CRISSY WAGGONER OF WATERFORD, WHO WENT OUT SHOPPING WITH HER MOTHER EVERY BLACK FRIDAY FOR 25 YEARS, UNTIL THIS YEAR
“They are building the world’s biggest package-delivery company. If you believe the carrier network is tapped out today, and it is, there is no other option.”
DAVID GLICK, A FORMER AMAZON LOGISTICS EXECUTIVE WHO SERVES AS CHIEF TECHNOLOGY OFFICER AT FLEXE, WHICH HELPS RETAILERS WAREHOUSE AND DELIVER GOODS
to rival the U.S. operations of United Parcel Service and FedEx, long the most dominant logistics companies, which helped the e-commerce giant get its start. But its ambition reaches well beyond delivering parcels to its own customers, according to former Amazon executives. The company is building a logistics system to one day deliver packages for customers to compete directly against UPS and FedEx, something it’s already doing in the United Kingdom.
“They are building the world’s biggest package- delivery company,” said David Glick, a former Amazon logistics executive who serves as chief technology officer at Flexe, which helps retailers warehouse and deliver goods. “If you believe the carrier network is tapped out today, and it is, there is no other option.”
Amazon said on a recent earnings call that it boosted its fulfillment capacity — the collection of warehouses, delivery stations and drivers it uses to get packages to customers — by 50 percent this year, helping fuel $30 billion in total capital spending.
While Amazon’s move into shipping its own packages and freight has been building for years, the implications will provide it a stark advantage this holiday season, when Amazon’s rivals will probably wrestle with getting packages delivered by a network already clogged with pandemic shopping.
That will probably hand Amazon a massive advantage in a holiday season in which U.S. e- commerce purchases will climb 35.8 percent to $190.5 billion, according to a forecast by the research firm eMarketer.
( Amazon chief executive Jeff Bezos privately owns The Washington Post.)
When the pandemic started, there were few e- commerce companies that seemed less prepared than Amazon. It went beyond just logistics. Warehouse staff around the globe sounded alarms that company policies put their health in jeopardy. Rogue third- party sellers gouged buyers on such hard- to- find items as hand sanitizer and listed products making dubious claims about virus protection.
Meanwhile, shipping delays led customers to gripe about third-party sellers at the highest levels ever. The clogged network, and the new hurdles caused by the pandemic, led Amazon to throw gobs of money at the challenge. It sped up spending it had planned for next year on acquiring new warehouse space, to supplement a logistics network straining under the weight of pandemic-fueled shopping.
“We are erring on the side of having too much capacity,” Amazon’s finance chief, Brian Olsavsky, said late last month during a conference call with analysts. Amazon spokeswoman Rena Lunak said the company is ready for the holidays.
Even so, the added surge in holiday shopping could pose a challenge. Olsavsky noted that Amazon’s capacity will be “tight” this holiday season, and that the company continues to rely on shipping partners such as UPS and the U.S. Postal Service. When the pandemic shopping fades, Amazon will have a massive network, built when few were looking.
Amazon’s push into logistics echoes past moves into markets where longtime partners operate. The company has a long record of leveraging its dominance in one market, and the data it gleans from that hegemony, to dive into another. A House subcommittee that last month accused Amazon, along with Apple, Google and Facebook, of engaging in anticompetitive conduct, found that the e- commerce giant “routinely appropriates seller data to benefit its own private-label and retail businesses,” a charge Amazon denies.
In the case of its newer transportation business, Amazon has long studied the shipping routes of its partners, digging into the economics of population density of urban markets, said a former Amazon executive who spoke on the condition of anonymity because the person was not authorized to speak publicly on the matter. The more dense a region’s population, the more lucrative the route is for partners like UPS. Drivers can deliver more packages in a shorter period, and keep other costs, such as fuel consumption, down. It’s why Amazon has left many of its costlier rural deliveries to other partners, primarily the Postal Service.
UPS often shared proprietary routing data with Amazon executives, and gave them tours of its operations to sell them on its business, according to a former executive who wasn’t authorized to speak on the matter. As Amazon’s shipping aspirations became clearer, UPS shared less. But then Amazon hired dozens of logistics executives to help it map out its own delivery strategy.