Amazon Squeezing Out Competition With Warehouse Expansion

Amazon (NASDAQ:AMZN) may be entirely online from the buyer's point of view, but from the supply-chain standpoint the retailer has been building like there's no tomorrow, according to Businessweek. Since 2010 the company has invested about $3.9 billion in new warehouses, which has been good for 50 locations and a bigger investment than it made in storage facilities since it was founded in 1994.

The e-commerce giant now has a total of 89 warehouses and plans to add five more by the end of this year. So why the sprint to have so many locations in place? According to Wells Fargo analyst Matt Nemer, to be able to beat Walmart (NYSE:WMT) and eBay (NASDAQ:EBAY) to the punch.

"What Walmart and eBay are working on is, can they be faster than Amazon?" he told Businessweek. "It might not be the highest-margin sales in the world, but they can potentially get something to you in an hour."

Based of the rate of Amazon's expansion, it will only get harder for those guys to win the race to customers' doors in the future. Amazon started its Prime program in 2005, which lets users pay $3.99 for same- or one-day shipping (or $8.99 without a Prime membership). Walmart charges $10 to deliver an online order from one of its stores within the day, while eBay charges $5 for same-day delivery from retailers like Target, Walgreens and Best Buy.

Expenses for storage, shipping and delivery have expanded to become the biggest chunk of Amazon's operating costs. They grew more than 40 percent a year from 2010 to 2012 and were a major factor in the company's $39 million loss last year. But the company's stock has doubled in value since 2010 and now it has warehouses near the country's top 20 cities.

According to supply chain consultant MWPVL, Amazon is just 12 warehouses away from being able to offer same-day delivery to half the country, compared to the 15 percent it can accommodate now. That's a pace that very few competitors could manage, or afford, to keep up with.

For more:

- See this Businessweek story

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