Supply Chain News

Why Amazon is Losing $410 to $810 Million this Quarter

Amazon's stock is tanking after the company delivered disappointing second-quarter earnings, including enormous predicted losses for next quarter.

In a press release, Amazon said that about $410 million of that would go to stock-based compensation, but what about the other potential $400 million?

In Amazon’s earnings call, CFO Tom Szkutak described several major contributors to the expected losses: Investment in Amazon Web Services, digital content, and the development of new fulfillment and “sortation” centers.

Szkutak says that AWS usage grew by 90% year over year and that the company plans on continuing to invest heavily. This year, Amazon released 250 new services and features. It also gave users more discounts (just days after Google cut prices for its cloud services earlier this year, Amazon slashed its own prices, proudly touting its 42nd price cut in six years).

Szkutak also said that the company planned to spend more than $100 million on original video content in the third quarter. Amazon wants to beef up its Prime Instant Video content to make its $99 Prime subscriptions more attractive to potential members. The more people who sign up for Prime, the better for Amazon. (People with Prime spend almost double the amount on Amazon as nonmembers.)

Finally, on its constant quest for speedier delivery, Amazon is adding six fulfillment centers and 15 or more “sortation” centers. The point of sortation centers is to make shipping more efficient (see below - Amazon’s ‘Sortation Centers’ Bite Off More of Delivery’s ‘Last Mile’).

Amazon sends prepared customer packages to sortation centers, where they’re then sorted and shipped to individual post offices, which Szkutak says helps get product to customers faster and on Sundays. (Amazon now delivers on Sundays to 17 cities.)

Despite Szkutak’s explanations, investors on the call still seemed skeptical. Although they’ve typically accepted Jeff Bezos’ mantra of taking losses now for long-term success, the stock plunge is clearly an indicator that they’re running out of patience.

Most Of Amazon’s Income Goes Back Into The Company
Amazon reported its earnings Thursday, but while revenues were right in line with Wall Street’s   expectations, the company posted a net loss of $126 million. The company   says it will lose between $410 million and $810 million in the next quarter, compared to just $25 million in the quarter a year ago.

When you look at Amazon’s revenue and income data, which was charted for us by Statista,  Amazon rarely posts big profits, as the company continually re-invests its net income back into the company. It may not be great for the company’s bottom line, which might explain all of the company’s fleeing investors, but at least Amazon’s revenue keeps steadily growing each year. Already   this year, Amazon has unveiled two new consumer devices, including a TV set-top box and a 3-D smartphone called “Fire,” but breaking into new product categories isn’t cheap.


Amazon’s ‘Sortation Centers’ Bite Off More of Delivery’s ‘Last Mile’
Amazon.com is taking more control of its delivery operations, a move that will likely give it an edge in same-day delivery options and bolster its challenge to traditional brick-and-mortar retailers.

The company recently opened up a new “sortation center” in Kent, Washington, the Seattle Times’ Jay Greene reports. Unlike traditional fulfillment centers where employees sort and prepare items for shipment, this warehouse is full of sealed packages that move along conveyor belts, where workers and computers sort them and prepare to ship them to individual post offices.

Increasing delivery speed is a top priority for Amazon, Mr. Greene writes. By controlling the delivery process up to the last mile, Amazon can deliver packages to customers on Sunday, a service it announced last year. The sortation centers can also help Amazon reduce shipping costs, and brings the company closer to erasing brick-and-mortar’s key advantage: the ability for customers to immediately walk away with the item they purchased.

Control is key for Amazon, particularly after last year’s holiday season, when the company faced delivery delays from UPS that left some customers without their gifts. At the time, analysts said there was plenty of blame to go around for the mishap, including on retailers for setting unrealistic delivery expectations. Amazon, for example, told customers as late as Dec. 22 that they could still get gifts in time for Christmas. The last-minute orders led to a shipping bottleneck and late gifts.

Related: How Online Consumers Added to the Holiday Shipping & Logistics Nightmare

Amazon has quietly opened up more of these centers in Atlanta; Dallas; Houston; Phoenix; Avenel, N.J.; Hebron, Ky.; and San Bernardino, Calif., the Seattle Times writes.

Here’s how the sortation center works:

In the past, Amazon might have shipped a DVD ordered by a Seattle shopper, for example, from its fulfillment center in Sumner. There, workers would have boxed the item and handed the package off to one of several carriers, such as UPS or FedEx.

Now, Amazon will put that DVD onto a truck that will bring it, along with tens of thousands of other packages on other trucks to this Kent site, generally within a day or so for items that are shipped two-day delivery.

Amazon workers, then, sort all the packages by ZIP codes, place them on pallets and deliver them to local post offices — for now, the new sortation centers will deliver only to U.S. Postal Service offices — by 6 a.m. to 8 a.m. to arrive in that day’s mail.

Amazon has also been testing its own delivery network for the “last mile” of a package’s journey to customers’ doorsteps, according to the WSJ. Trucks loaded with Amazon packages and driven by Amazon-supervised contractors leave for addresses around San Francisco, and similar efforts are under way in Los Angeles and New York.

Speedier delivery by Amazon is yet another challenge to brick-and-mortar retailers still grappling with their e-commerce and fulfillment efforts. As more technology companies, including Google Inc., get into the delivery business, these retailers will need to find a way to optimize their own e-commerce and shipping offerings to best meet customers’ needs.

Related: Why Amazon’s $8Trillion B2B Bet is Flying Under the Radar Screen

Download the White Paper: Sorting Out Your Sortation Options

Article Topics
Trends   Supply Chain   Leadership   Amazon   All topics


Comments
2 Comments (displaying chronologically) Post a comment
You must be logged in to post a comment. Login.

 
Latest Supply Chain News
6 Ways Artificial Intelligence Technology Is Impacting Logistics and Supply Chain Management
Artificial Intelligence is already enhancing our lives as consumers, now it is picking up momentum in supply chain management and logistics, and managers should pay close attention as more AI-enhanced…

8 Fundamentals for Achieving Artificial Intelligence Success in the Supply Chain
In the race to use AI, many companies have made attempts to implement it, but the results have been disappointing, and despite its benefits when looked at through the lens of a supply chain executive,…

9 Omni-Channel Logistics Challenges Facing Your Supply Chain
Omni-channel logistics is all about providing consumers with a seamless shopping experience and is only attainable when businesses leverage their ecommerce capabilities with running both a brick-and-mortar…

Increase Inventory Visibility across Your Supply Chain and Optimize Omni-Channel Fulfillment
The key to meeting and exceeding inventory efficiency across multiple channels is to improve your company’s omni-channel fulfillment performance, starting with inventory visibility.


 

24|7 Pro Team

The 24|7 Team is your direct pipeline to solutions for your business challenges. It's your opportunity to have supply chain and logistics experts look at your specific challenges and needs, and give you free, no-obligation advice, solutions, and information.

The 24|7 Team will simplify the task of creating a database of likely partners, building your knowledge base, and preparing your Request for Proposal list.

1
  Choose a topic for your RFP

Transportation RFP/RFI

The Transportation RFP is your direct pipeline to solutions for your transportation challenges. It's your opportunity to have logistics experts look at your specific transportation challenges and needs, and give you free, no-obligation advice, solutions, and information specific to your request.

Choosing the perfect software or system can be an indomitable challenge. Using this transportation/TMS RFP will simplify the task of creating a database of likely partners, building your knowledge base, and preparing your Request for Proposal list.

Warehouse/DC Management RFP/RFI

The Warehouse Management Systems (WMS) RFP is your direct pipeline to solutions for your WMS challenges. It's your opportunity to have logistics experts look at your specific WMS challenges and needs, and give you free, no-obligation advice, solutions, and information specific to your request.

Choosing the perfect WMS solution can be an indomitable challenge. Using this WMS RFP will simplify the task of creating a database of likely partners, building your knowledge base, and preparing your WMS Request for Proposal list.

Supply Chain RFP/RFI

The Supply Chain RFP is your opportunity to have logistics experts look at your specific challenges and needs, and receive free, no-obligation advice, solutions, and information. It simplifies finding a pool of likely partners, building your knowledge base, and preparing your Request for Proposal list. The companies in the Logistics Planner have agreed to respond to your request for in-depth information and follow-up, and your request is totally confidential.

Software/Technology RFP/RFI

The Software/Technology is your direct pipeline to solutions for your logistics information technology challenges. It's your opportunity to have logistics experts look at your specific technology challenges and needs, and give you free, no-obligation advice, solutions, and information specific to your request. Whether it's WMS, TMS, Mobile or Cloud, our pros can help.

The companies listed below have agreed to respond to your request for in-depth information and follow-up. Your request is totally confidential.

Executive Education RFI

The Logistics and Supply Chain Education RFI can help you identify the schools, coursework, continuing education, distance learning and certification opportunities available from leading logistics educational institutions.

Upgrade and improve your logistics and supply chain skillsets. Whatever route you choose—advanced degree, executive education, certification or distance learning—the time and money you invest in your education today can pay off in continued career success tomorrow. Contact leading universities and professional institutions for the information you need to prepare for the future.

Third Party Logistics RFP/RFI

This 3PL Request for Proposal (RFP)/Request for Information (RFI) can help you find the 3PL and 4PL providers that can meet your specific 3PL service challenges and needs. The 3PL companies below will provide free, no-obligation third-party logistics advice, solutions, and information.

Ask your 3PL questions, you'll get answers. Simply complete the information, and detail your 3PL challenges. Then, check off the third-party logistics companies that you want to review your request.

1. Choose an RFI topic.
2. Enter your contact information and challenge.
3. Select companies and optional categories.
4. Submit.


2

Your Information



Your Challenge, Problem or Request *

3

Select Transportation Companies

  • Select All

  • 3Gtms
  • BluJay Solutions
  • CSX Trans. Intermodal
  • Kuebix
  • Landstar
  • Legacy Supply Chain Svs.
  • One Network
  • Pitt Ohio
  • Purolator
  • Quintiq
  • SEKO Logistics
  • SMC3


Select Relevent Categories

  • Air Freight
  • Intermodal
  • Motor Freight
  • Ocean Freight
  • Rail Freight
  • TMS

Select Warehouse/DC Management Companies

  • Select All

  • 3PL Central
  • Apex Supply Chain Tech.
  • Honeywell Intelligrated
  • Kuebix
  • Legacy Supply Chain Svs.
  • Swisslog
  • Westfalia Technologies
  • Zebra Technologies


Select Relevent Categories

  • Auto ID & Data Capture
  • Automation
  • Conveyors & Sortation
  • Lift Trucks
  • Packaging & Labeling
  • Pallets & Containers
  • Shelving & Racking
  • WMS

Select Supply Chain Companies

  • Select All

  • 3Gtms
  • 3PL Central
  • Amber Road
  • Apex Supply Chain Tech.
  • APICS
  • BluJay Solutions
  • CSX Trans. Intermodal
  • Frontier Business
  • Kuebix
  • Landstar
  • Legacy Supply Chain Svs.
  • Logility
  • One Network
  • Purolator
  • Quintiq
  • SMC3
  • Synchrono
  • TAKE Supply Chain
  • Westfalia Technologies
  • Zebra Technologies


Select Relevent Categories

  • Global Trade
  • Inventory Management
  • Risk Management
  • Sustainability

Select Software/Technology Companies

  • Select All

  • 3GTMS
  • 3PL Central
  • Apex Supply Chain Tech.
  • BluJay Solutions
  • Honeywell Intelligrated
  • Frontier Business
  • Kuebix
  • Logility
  • One Network
  • Quintiq
  • SMC3
  • Swisslog Logistics
  • Synchrono
  • TAKE Supply Chain
  • Zebra Technologies


Select Relevent Categories

  • ERP
  • Sales & Operations
  • Sourcing/Procurement
  • Optimization
  • Transportation Mgmt
  • Warehouse Mgmt

Select Executive Education Choices

  • Select All

  • Graduate Courses
  • Online/Distance
  • Executive Education
  • Certifications
  • Undergraduate
  • Seminars
  • Associations
  • Conferences
  • Tradeshows


Select Third Party Logistics Companies

  • Select All

  • 3PL Central
  • Landstar
  • Legacy Supply Chain Svs.
  • Purolator
  • SEKO Logistics
  • Westfalia Technologies


4
 

24|7 Company Profiles