Amazon says same-day delivery not feasible on broad scale

Ecommerce giant Amazon spoke yesterday of its efforts to get closer to its customers, to cut shipping costs and reduce delivery times. The company has been investing heavily in new fulfillment centres and has been experimenting with alternative delivery options, including the use of parcel collection lockers and same-day delivery services in limited metropolitan areas.

In discussing the company’s latest financial results yesterday, Amazon’s chief financial officer Tom Szkutak said the company was working to “figure out” ways to get products to customers more quickly.

The company has been offering same-day Local Express Delivery in 10 US cities including Chicago, New York, Philadelphia, Seattle and Washington DC.

But Szkutak said yesterday that express courier options at the extreme end of the speed scale were not viable for everyone.

“We are certainly trying to get geographically closer to customers,” he said. “It’s something we have been doing for some time. But in terms of same day, we don’t really see a way to do same day delivery on a broad scale economically.”

Investment

In Amazon’s second quarter of the 2012 year saw sales up 29% year-on-year to $12.8bn for the three months to the end of June, but net income fell 96% to just $7m for the quarter, with eight or nine-figure losses projected for the third quarter of the year.

After making small profits in recent years, the return to losses is being seen as a massive investment in the company’s future growth.

But analysts said the impact on shipping costs at Amazon was already being seen, with the company’s shipping costs falling as a percentage of sales for the first time in nearly three years, as shipping cost per unit fell by about 10% in the quarter.

Szkutsk said there were various factors affecting Amazon’s shipping costs. “Certainly one of them is we are getting closer to customers and that’s just with our wider fulfillment networks, so that’s really having an impact. We have a lot of opportunities to improve that over time.”

Amazon has announced 18 new fulfillment centres so far this year to be built around the world, including in areas in and around California, New York, Virginia, Tennessee and Texas. Its expansion in fulfillment has helped fuel a 60% increase in the company’s workforce, to 60,000 over the past year.

“We have actually opened six of those already this year, out of the 18. And we are looking at potentially opening even more than that. So those are certainly something that are impacting the cost so far,” said Szkutsk.

Sales tax barrier

One factor is now allowing Amazon to open more localised fulfillment centres around the United States, to keep its stock closer to large centres of population so that shipping distances will reduce, has been the resolution of its various state sales tax battles.

Amazon’s new requirements to collect sales tax in several US states has freed up the company up to locate fulfillment centres in those states.

The company had been contesting its obligations to collect sales taxes from customers where it had no physical presence in those states, but after signing bilateral agreements with those states to begin paying sales taxes, it can now set up a physical presence in those states.

Szkutsk said yesterday that Amazon had seen good growth in the states collecting sales tax, and was therefore content to go on with the situation.

The company is now lobbying for sales tax to become a federal, rather than a state-by-state issue.