It’s no secret that Amazon is a powerhouse when it comes to online shopping, and not just holiday shopping. The growth explosion is expected to continue, according to analysts quoted by Bloomberg.
This growth is having an impact on smaller warehouse providers as Amazon tries to keep up with the growth of its overall sales, but especially amongst its Prime customers. Prime customers pay an annual fee to get free two-day shipping in addition to other perks.
One would think that exploding growth would equal exploding profits but warehouse capacity issues and the costs associated with building new facilities increased Amazon’s spending on order fulfillment by 34 percent in the third quarter 2015.
Bloomberg reports that Amazon’s revenue was projected to increase 28 percent in 2016 (to $137 billion!). Amazon is accelerating its warehouse building spree with more than 15 fulfillment centers across the country in the works.
Amazon also made several changes in its programs to help keep customers happy (and therefore loyal) and to keep costs at bay as the online giant rushes to build more warehouse space.
Seller Fulfilled Prime program
As you probably know, Amazon is an online hub that sells their own products and allows other merchants to sell products on the site as well. Previously, products sold and fulfilled by companies outside of Amazon were not available for the free two-day shipping for Prime members.
Normally, the companies do not wish to handle the processing, packing, and shipping of their items and they will simply store their items at the Amazon warehouses. However, in the last year, Amazon was forced to restrict warehouse access because of the capacity problems.
As a result, early last year, Amazon introduced the Seller Fulfilled Prime program, which essentially allows small businesses to sell goods on Amazon as Prime Eligible. The companies must pass a strenuous vetting process to prove their ability to provide excellent customer service including two-day shipping and an efficient returns process. This program expanded the number of Prime-eligible items by 6 million.
The program has proved successful, according to recent reports. Amazon is still working to build more warehouses, but it appears that partnering with smaller merchants who provide their own fulfillment through their logistics partnerships was a smart idea for the online retail giant.
What does this mean for the warehousing industry?
Overall, this rise in e-commerce and Amazon’s growth is good news! This shortage of Amazon warehouse space allows Amazon to more efficiently rely on smaller logistics providers. As the warehouse shortage continues, it will become increasingly important for the companies involved to get creative with their outsourcing of warehouse spaces. There is a likelihood that more, smaller warehouses will continue to be involved with large e-commerce providers.
While On Time Logistics does not currently store items for Amazon sellers, we do serve as a last minute delivery service provider for Amazon in the NWA region. Hopefully, as Amazon continues to grow, our relationship with the e-commerce company will continue to grow. We have warehousing space in both Northwest Arkansas and Tulsa to accommodate merchants who want to start selling with Amazon.