Amazon Has Twice As Many Fulfillment Centers As The Rest Of The Entire US Retail Industry

Tyler Durden's picture

Ask a number of analysts what is the secret to Amazon's retail (if not overall) success, and 9 out of 10 times the answer will be its meticulous, seamless, and incredibly efficient distribution and logistics system. Or, as Credit Suisse puts it, Amazon has stumbled on (really created) a new distribution model: a "pull" (or demand) model in which the Distribution Center is at the center of the shopping/retail experience, vastly different from the old "push" model, which centered around the retail store.

It's also what Credit Suisse calls the "Amazon Effect", and is the biggest (not so) secret behind the company's retail success. Here is how Credit Suisse describes it:

Amazon has helped fuel the demand chain by offering best-in-class fulfillment capabilities and guaranteeing quick response delivery of packages. Amazon commits to providing free 2-day and deeply discounted 1-day shipping to Prime members (~50M-plus).

 

In this quick response world, inventory availability within a close enough proximity to the customer is key. Amazon has worked to build out its distribution center network with 230 active fulfillment centers (ex. pantry/fresh food DCs) in the United States.

 

In our opinion, Amazon's network enables the company to fulfill in the new "pull" distribution model. This is in vast contrast to companies in our coverage which follow the traditional "push" model and only have a few key distribution centers located around the country.

This is also known as the Amazon moat, or why Jeff Bezos' company, well on its way to becoming a mononpolist across many industries, remains insurmnoutnable. Conveniently, it can also be quantified by the number of fulfillment, or distribution centers across the country in comparison to the rest of the retail sector. As the chart below shows, as of this moment, with 230 DCs, Amazon has 40x more logistics centers across the US than the average number of distribution centers across the Credit Suisse coverage universe, and roughly twice as much as the rest of the entire retail sector combined!

So with such a massive moat, in both logistical and invested capital terms, is Amazon simply unreachable for its nearest competitor(s) in this new, "pull model" world of retail sales? Not necessarily.

According to Credit Suisse retail analyst Christian Buss, one possibility would be the conversion of existing brick and mortar stores into mini distribution centers to directly compete with Amazon.

Building out logistics facilities is expensive and time consuming. Brick-and-mortar retailers already have stores built out across the U.S., but we believe these stores could be used in a more efficient way to better capitalize in a demand chain world. Some stores might be put to better use as mini-distribution centers located close to the consumer. Stores located in malls are not ideal as there aren't store specific loading docks and logistics would likely be more challenged.

 

We estimated the number of Off-Mall stores for our coverage universe and combined with fulfillment enters to get an idea of the total possible distribution network available. In this framework, traditional softline and broadline retailers become more competitive on the distribution front.

Perhaps instead of accusing Amazon of being a monopolist, a war of attrition whose success is hardly guaranteed even under the receptive Trump administration, a better approach would be for the rest of the "legacy" retail sector - which is losing the battle against Jeff Bezos' juggernaut - to request government financial assistance to refit its existing store base, a financially feasible exercise, and then at least take on Amazon on an equal footing. Failing that, it is difficult to see how the prospects for the US legacy retail industry are anything but dire.

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Slippery Slope's picture

So, When is this monopoly going to be broken up?

hedgeless_horseman's picture

 

Fulfillment Centers?

Like an Oriental Massage Spa?

Looney's picture

 

The Washington Post is a distribution center, too. Kinda…   ;-)

Looney

hedgeless_horseman's picture

 

Amazon's network enables the company to fulfill in the new "pull" distribution model. This is in vast contrast to companies in our coverage which follow the traditional "push" model and only have a few key distribution centers located around the country.

Who writes this shit?

MillionDollarButter's picture

Walmart and Sam's Club have 173 distribution centers.

krispkritter's picture

Having just ordered some stuff from Wally, it arrived in two days for free, no membership required. Both orders were from outside vendors. Wonder what Wally is charging them?  The 15% Bezos does?

knukles's picture

"Fulfillment Centers"
Oh fuck me, they're goddamned shipping/warehouses.

Plus, lemme tell you that just wanting to see it myself today, I went to our local Birkenstock proveyer, Whole Foods, in search of all the products and produce on sale 50% off as Mr Whatchamacallit said he was gonna do and guess the fuck what?

Prices, if anything, were higher.

Cunt

Mtnrunnr's picture

This is all the big bullshit. its VC and capital selecting a new winner. The consumer will lose out and middle class and the poor will have less choice. we won't even be able to choose anymore because there will be one store and it's all online. no more meat department to employ people, no more choosing vegetables. You'll get what you're given for the same price because fuck you, you'll buy it.

 

Mtnrunnr's picture

This is all the big bullshit. its VC and capital selecting a new winner. The consumer will lose out and middle class and the poor will have less choice. we won't even be able to choose anymore because there will be one store and it's all online. no more meat department to employ people, no more choosing vegetables. You'll get what you're given for the same price because fuck you, you'll buy it.

 

Mouth of Liberty's picture

^^^ This^^^

 

You have to wonder if this type of business model would ever be sustainable without the inflated stock "market".  The only reason that Amazon is still operating is because there is always a bigger idiot that will continue to buy the stock at an outlandish 250 P/E.

J Pancreas's picture

AWS subsidizes Amazon.com. It's quite the racket Bezos has built... Better be rooting for Microsoft, Google, IBM and others because that's how you slay the Hydra.

hedgeless_horseman's picture

 

Free Happy Ending with Amazon Prime!

krispkritter's picture

Ah ah, $99 per year for Happy Ending otherwise Standard Strokee Strokee.

bamawatson's picture

after the wall is built and hillary is jailed

NotApplicable's picture

I eagerly await the WaPo editorial on this subject.

AGuy's picture

Missing some big names:
Walmart, Costco, BJs as well as the big supermarket chains.

pitz's picture

Yet still can't make money.

 

Why is that?

truthalwayswinsout's picture

This article is just full of it.

Amazon cannot make money but its success is due to the fact that 50% of its business is done by independent vendors. The only reason they do business with Amazon is Amazon has an online monopoly.

The only thing Amazon should be known for is it saw how Google was screwing over small companies in the U.S. So Amazon wisely let them join its online markeplace and direct all the business to Amazon.

THAT IS THE ONLY REASON FOR AMAZON'S GROWTH IN SALES AND ALSO THE REASON WHY IT CAN'T MAKE MONEY. All the independent vendors are making the money on Amazon. For every $100K in sales on Amazon we make on Amazon we make $75K net profit after all is said and done.

Recently, Amazon is promoting very sinister relationships and is trying to get sources from China for the indpendent products it does not control and basically replace most of its independent vendors with products it controls.

azusgm's picture

Maybe your products would fit in with Bed Bath & Beyond. I did almost all of my online Christmas shopping through BBY's marketplace.

Arrow4Truth's picture

Was online shopping for a new Eton FRX5-BT weather radio and was stunned to see BB&B on the web search. Had no idea they were going outside of their element. Good price too.

Mr. Pain's picture

I wonder if you could run a string of whore houses this way? It would be tough but I think it could be done. Bezo might have to run it by hand in the beginning but its a sure model for success. 

css1971's picture

Just wait till the next  recession.

Or maybe they have been assured there will never be one.

Pollygotacracker's picture

I've sworn off shopping other than food and actual necessity items. Purchased a 6 foot electric heat cable for my water faucet during upcoming winter. Purchased a roll of green fabric tape to repair one of my awnings. I just don't shop. Hate stores. Hate Amazon (job killer). I am rebelling against the system. (Rah rah).

azusgm's picture

The reliability of their promised deliveries has been falling off. My brother, who is all about customer service and making things work better, told me yesterday that the items he has are arriving as promised in only about 1/2 the instances lately. What makes it worse is that the customer service reps seem to think that starting over with a time-sensitive order is just fine. Oh and besides that, he lives less than a mile from one of those big fulfillment centers.

CNONC's picture

They don't seem to understand that some of their customers are businesses. Three times now, including yesterday, when I placed orders to be dropped shipped to a job site, that is, shipped to an address different from my home address, they cancelled the orders and sent me an email saying they had detected fraud on my account. I find myself on a job site, 2000 miles from my office, with my dick in my hand, waiting on parts that won't be coming. Automation Direct, Grainger, Stromquist, and all of my other vendors do drop shipments without problem. I can not trust Amazon to deliver as agreed, so I can no longer use them.

sacredfire's picture

I am an individual that makes 90% of personal purchases from Amazon. I detest Bezos politics but marvel at the efficiency of his creation. I am a prime member and receive roughly 20 packages each month +- a couple. I return about 3 or 4 of those packages each month for a variety of reasons. Some items are well over $500.00 others $10.00, I have never had a single problem with a return, never a question!!! I have never received a package later than a day over advertised delivery, with the possible exception of those items Fed Ex insists on receiving a signature for.

What more can I say?

gregga777's picture

All that Amazon.CON did was to re-invent the late19th Century Sears Roebuck catalog over the Internet. Too bad the American Business School-trained MBAs in charge of Sears were too venal, corrupt and immersed in self-dealing self-enrichment schemes to do the same. There's (almost) nothing new under the Sun.

gdpetti's picture

True, they updated the old model... and others don't, why exactly? I remember when FedEx took over the most profitable shipping sector of the USPostal Service using the same national distribution model... WalMart came along and did much the same... Kmart did nothing... others did nothing.... why not? most of the biggest companies, if  not all of them, are tied to the oligarchy investment system... which is why they get so big, so fast, as making money is not expected as it used to be... the game has changed... only those with the deepest pockets of free money can play this game... if they wanted to.

ET's picture

Showrooms are not as important when there are high-definition video and images and customer testimonials on product pages to assess product quality.

Exchanges and returns are a hassle, though.

Do I buy from Amazon? Of course. It saves time.

Do I buy from local retailers? Of course. For larger or perishable items that are more difficult to ship.

Arrow4Truth's picture

I did use Amazon a bit, but no longer. I use the internet for most of my purchases, except I never use Amazon. I just will not contribute to an organization that uses their business model to exploit the customers in a number of ways. It's all about the mammon. I'm just weird like that. 

whatswhat1@yahoo.com's picture

Most of the big chains, Walmart, Costco, BJs, etc., have enough real estate to warehouse inventory and compete with Amazon.  They are temporarily "disrupted", but they will be in the game shortly.

abgary1's picture

I would be ok with the business model if I didn't have give them my credit card number, my home address and my purchase data.

I guess that means I'm not ok with it.

My privacy,rights and freedoms are more important than the convenience.

Millions died to preserve our freedom/rights and we are now freely giving it all away for convenience sake!

Have we become that stupid and lazy?

SantaClaws's picture

If you are not an Amazon Prime member, forget about prompt shipping.  They must put non-Prime orders aside for a week before shipping them just to try to get you to sign up.

Atticus Finch's picture

So, you're saying it's time to nationalize Amazon and Walmart.

Storm-Clouds's picture

The dead are pissed....

A group of the smelly bastards ordered a Rob Zombie Greatest Hits CD to be delivered at the wall!

Amazon claims the item was delivered but nobody can find it!

We told the rep not to fuck with us, but she revered the situation to Logistics!

The dead are really pissed they threatened to convert all the prime members to marchers...

Beware Whole Foods.....

NumbersUsa's picture

By the way, George Soros's real name is Gyorgy Schwartz, another jew supremacist hiding behind a gentile name.

SIGN THE PETITION HERE: 

 https://petitions.whitehouse.gov/petition/declare-george-soros-terrorist...

Quote from Thomas Jefferson (not THE TJ)

"While I am glad to see there are people among the Jewish community who denounce the actions of the Zionist agenda, far more needs to be done publicly to spread the knowledge about these Satan worshiping atheists being humanities most dangerous enemy. 

We must declare war on the bankers who gave us the most destructive monetary system ever conceived. This system is designed to bankrupt world governments and their respective countries via compound interest that is impossible to repay. It has already transferred the vast majority of global wealthy to the bankers as governments struggling to pay off bank loans are forced to sell assets/utilities owned by the public.

It is time to confiscate all bank stocks, liquid assets and the power of currency creation must be taken away from the banks and returned to the commonwealth of the people of each country and their official governments. This is the Achilles heel of all banks and where the Zionists have obtained ALL their power. All bank loans are to be cancelled globally.

 All immigration needs to cease immediately to defy the Zionist agenda to assimilate and dilute the purity of our racial nationalities. Our history needs to be re-written to expose the guilty for their lies and deception. Crime tribunals must be constructed to hold the Zionists/Mossad accountable for their belligerent, murderous and savage acts committed against humanity especially for their brutality and decimation of the Palestinian people."

SIGN THE PETITION HERE:

 https://petitions.whitehouse.gov/petition/declare-george-soros-terrorist...

King of Ruperts Land's picture

The retail sector should not be given "government financial assistance" to restructure. Companies that cannot compete should fail and the brick and mortar assets be sold to those who can make it work, with private investment money.

Amazon should be carefully watched for possible antitrust issues, but should not be punished just for creating a new distribution model.

Since it is so dominant at the moment though it better resist becoming political like Google has been caught doing. Bezos should shed the Washington post for example to be above all recrimination.

Retailing could use a revamp. Now I go into a store and half the time hear "we don't have that, look on the internet for that"

Last of the Middle Class's picture

Wal Mart===>associates!  Amazon===>fulfillment centers. what's the difference? Bezos fundamentally understood technology and what it could bring to the online shopping experience. I have Amazon Prime and use it weekly. Wal Mart decided an online presence was a couple of computer nerds putting up a web site and fought the Amazon concept from the get go. Shit, they deserve what they get and by the way it's the exact same thing they did to thousands of mom and pop operations around the US. Sorry, no tears here for Wal Mart. I was in the local wally world the other day and did notice their marketing has really been kicked up a notch. The shelves offer much more selection, the aisles are wider, the floors cleaner and the 6 week old dead ass smell that permeates the store seems to have abated. On the bad I noticed they are still giving massive shelf space to Proctor & God's products over the competitors and to me this doesn't speak well as to their understanding of shelf space. Seems it's still for sell to the supplier rather than the consumer and I see it as a serious problem when Amazon offers near unlimited selections at the click of a mouse. I think the neighborhood market concept has legs but the super store concept may be a dead man walking unless they change massively. shelf after shelf of cheap chinese shit is just done. Most consumers are just over that shit. We'll see.

conraddobler's picture

Someone should turn every failing mall into giant geographic distribution nodes.

 

sinbad2's picture

"Fulfillment centres" Americans are such wankers.

Let it Go's picture

When it comes to Amazon I am not a fan. Because of how it disrupts local economies I strongly urge people to consider what kind of community and society they want in coming years before jumping on the Amazon bandwagon.

Amazon excels in creating illusions that fail to hold up under scrutiny. For all the praise many people and politicians heap upon small business they are often quick to cut the very throat of the creator of much of our wealth and jobs. In the article below are fifteen reasons why Amazon is not the answer to a better future for America.

http://brucewilds.blogspot.com/2017/04/amazon-is-not-answer-to-creating-better.html