Why Amazon’s Fulfillment Costs Are Expected to Rise
By Adrian StevensAmazon’s fulfillment costs have gone up
Amazon (AMZN) has managed to steadily grow its revenue and margins. However, the company’s fulfillment costs have also grown rapidly. Amazon’s strategic push toward growing its fulfillment capacity is further expected to drive its margins in the coming quarters, with fulfillment costs to rise in tandem with them.
Fulfillment costs are the costs associated with fulfilling orders, including storing products in warehouses and shipping them to customers.
The chart above shows that Amazon’s fulfillment costs have also grown quickly. The year-over-year growth rate of these costs rose from 19% in 1Q15 to 34% in 1Q16.
Why the FBA program is important for Amazon
Fulfillment centers allow sellers to sell their products under the Fulfillment by Amazon (or FBA) program. The company considers FBA to be an important growth driver, as it provides customers with a variety of products to select from. Selection growth makes Amazon’s Prime program more valuable to customers.
Amazon plans to grow its fulfillment capacity before this year’s holiday season in order to better compete with rivals, including eBay (EBAY), Walmart (WMT), and Target (TGT). It has opened new fulfillment centers in a number of US (IVV) states such as California, Texas, New Jersey, and Illinois in the last few months.
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