Amazon Says It Can’t Scale Same-Day Delivery Economically
Amazon downplayed the idea of same-day shipping on its earnings call today, saying it had not found a way to do it on a broad scale economically.
Several reports have suggested recently that Amazon’s strategy is to move its distribution centers into urban centers, so that it can deliver products to consumers within a few hours after they hit the buy button.
But Amazon’s CFO Tom Szkutak said not to get your hopes up.
“On the topic of delivery speed to customers, we are trying to get closer to customers, but in terms of same-day delivery, we don’t see a way to do same-day on a broad scale at the moment. But we are always trying to figure out a way to serve them [our customers] better,” he said. “We don’t see a way to do that on a broad scale economically.”
While that still leaves the door open a crack, it appears from the company’s second-quarter call that while faster delivery may not make a lot of sense right now, the economics of building more warehouses in more central locations does.
The retail giant, known for two-day delivery through its Prime membership program, says it plans to build 18 new fulfillment centers this year, of which six are already open. It confirmed it could be looking to open even more.
During Q2, Amazon said, worldwide net shipping costs totaled $585 million, representing 4.6 percent of the company’s net sales, compared to the previous quarter, when shipping costs totaled $668 million, or 5.1 percent of sales.
Szkutak said costs per item have fallen as the warehouses have gotten closer to customers, reducing the amount of fuel needed. “We are seeing a number of factors,” he said. “We are getting closer to the customer.”
Building and operating those facilities, however, is one of the company’s largest expenses. Amazon said its net sales increased 29 percent to $12.83 billion in the second quarter, but its operating income was nearly halved to $107 million from a year ago.
By becoming more efficient, Amazon was able to make a significant difference.
For example, during the second quarter, it started selling thousands of new products that were previously uneconomical to ship because of their size, weight or low price. Some of the items now available on the site include things from everyday categories such as household items, groceries and beauty.