This is Part III of our three part series digging into Amazon’s Q4 results. A summary and guide to the series is here:
- Part I: High level overview of Amazon’s Q4 (Available here)
- Part II: Deep dive into Amazon’s Q4 3P performance (Available here)
- Part III: Under the hood of Amazon’s FC network (FC = fulfilment centre) (You are here)
Important Note on this blog post before we get started:
All of the information in this article is from publicly available sources including, Amazon public reports, CBS, NBC, Fox news, Foursquare, google maps, The MWVPL International Supply Chain Experience, Amazon FBA documentation, wikipedia, Amazon’s job listings and Amazon’s fulfilment recruitment site.
Amazon’s FC network is a living breathing ‘entity’ with new facilities opening and closing all the time. We will work to keep the data up to date on a quarterly basis. Please let us know in comments if you find an omission or have any FC news we should add to our db.
Backgrounder on Amazon+fulfilment
If you look at the growth of Amazon compared to e-commerce (as measured by ComScore), you noticed that before 2006, Amazon grew in-line with e-commerce and then after that time, Amazon grew significantly faster. I attribute boost in growth rate to two things:
- 3P – Amazon’s Third party marketplace is a huge win – it stocks the shelves (selection), creates price competition (value) and frees amazon’s cash to be invested elsewhere
- Free shipping programs – Industry lore goes that Amazon did research and decided that instead of marketing, if they put every dime into lowering shipping costs to consumers it would drive more sales. They started with super saver and then introduced Prime (free all-you-can-eat 2 day shipping for ~$80)
Most readers know this, but just in case: these two programs ‘intersect’ with a program that Amazon calls FBA – fulfilment By Amazon. In this program, Amazon allows 3P sellers to use their FCs for a fee. The beauty of this program is that it allows 3P sellers access to the Amazon Prime program which we estimate is 10% of Amazon’s customer base (approx 20m), but they spend 4X the average – so Prime represents about 40% of the Amazon wallet.
In the past two posts, we covered the important 3P results from Q4, and in this post we want to dig deeper into fulfilment because it is the heart of the Prime experience and strategically very important to Amazon’s success.
Why does fulfilment matter?
Amazon has been building fulfilment centres (FCs from here out) at a rapid pace and following a pattern where they enter a state/country/region and build out 2-5 FCs around population centres. During the Q4 conference call there was an interesting Q+A exchange between Morgan Stanley’s internet analysts, Scott Devitt and Amazon’s CFO, Tom Szkutak that I have snippet-ed from the transcript (here if you want to read the whole thing):
“Devitt: …it looks to us that you have successfully begun to transition your logistics cost in the direction of being more of a fixed fulfilment cost, with lower unit based shipping costs….”
Szkutak: “In terms of fulfilment, you’re right. Over the past few years, we have expanded our FCs pretty extensively to the point where we are closer to customers; and you are seeing that reflected in our transportation costs….”
This makes logical sense. Let’s say that before it built a FC near SFO, the closest FC was Las Vegas which is 550 miles away. That’s a lot of ground for packages to cross and thus high transportation cost. Now let’s say that the product moves to within 10 miles. You have taken essentially 550 miles out of the trip that package travels (assuming you can be smart about getting the right products and limiting the movement intra-FC, etc.)
In this post, we’ll look under the hood of Amazon’s FC network and get a good feel for:
- How large is Amazon’s FC footprint both domestically and abroad?
- How many of the top US cities does Amazon cover with their FC network?
- How many FCs has Amazon already announced for 2013?
- What is it like inside Amazon’s FCs?
- Finally if you stick around and you are an FC geek like me, I have a collection of interesting videos and pictures of Amazon’s FC network that I’ve found over the years.
This is very timely because as more and more retailers, manufacturers and sellers are leveraging FBA and programs like FBA export, we are getting a lot of questions about Amazon’s fulfilment network. The top question is….
How large is Amazon’s FC footprint?