AMZN - Amazon.com Inc.

[DTEJD1997]

ajc:

 

Thanks for the good discussion!

 

AMZN could possibly be "killed" in the future...but it doesn't have to be...it just needs to have a strong competitor come up against it.  Their business could even continue to grow sales, but they might have their valuation collapse.

 

I don't think under any reasonable scenario that AMZN would be out of business in 5 years.  They probably will grow their sales.

 

HOWEVER, what is the risk that the have a valuation compression?  I would think that is almost certain. 

 

As a side issue, I do sometimes shop online.  I also sell online.  In fact, that is how I have made my living for the past 15 years or so.  I've been selling online since the mid 90's.  I got started on the "usenet" groups way, way, way back when.

 

Whatever happens with AMZN, it will certainly be interesting!

 

 

[ItsAValueTrap]

So, speed-wise AMZN leads now but what if UPS or FedEx went to some big electronic manufacturers (Sony, Samsung, etc, etc) and struck a deal?

 

I don't think that the manufacturers would be able to get a large speed advantage.  Amazon has a network of warehouses across the country.  To duplicate that speed, you'd have to build your own network of warehouses... and very few companies are going to have the money to do that.

 

Large electronics manufacturers could setup their own retail sales networks... but it's a lot of effort and not a lot of gain.  Sony has its own bricks and mortar retail stores, which seem to have mediocre success.

If you want to setup your own online store for physical goods, it's a huge amount of work.  If you're a small company, it makes no sense to do it.  You'd rather use another company's fulfillment services (e.g. Amazon's).

 

If you're a larger company, you'd have to setup your own distribution network, IT, shipping/logistics, customer service, billing department, website, etc. etc.  Or you could just focus on your core business.

 

2- There are many companies with their own B&M and online stores that are happy to sell through Amazon.  Crocs, Sony and Apple are examples.

[Guest ajc]

 

I don't think that the manufacturers would be able to get a large speed advantage.  Amazon has a network of warehouses across the country.  To duplicate that speed, you'd have to build your own network of warehouses... and very few companies are going to have the money to do that.

 

Large electronics manufacturers could setup their own retail sales networks... but it's a lot of effort and not a lot of gain.  Sony has its own bricks and mortar retail stores, which seem to have mediocre success.

If you want to setup your own online store for physical goods, it's a huge amount of work.  If you're a small company, it makes no sense to do it.  You'd rather use another company's fulfillment services (e.g. Amazon's).

 

If you're a larger company, you'd have to setup your own distribution network, IT, shipping/logistics, customer service, billing department, website, etc. etc.  Or you could just focus on your core business.

 

2- There are many companies with their own B&M and online stores that are happy to sell through Amazon.  Crocs, Sony and Apple are examples.

 

Frankly, I don't know enough about how the entire industry operates to give a confident opinion.

 

What I was thinking though is that because Amazon changed the process from manufacturer-warehouse-store to manufacturer-warehouse-shipping, what's to stop the manufacturer and a shipping company from getting together and cutting out Amazon.

 

I was figuring that the manufacturing plant churns out headphones or whatever and puts them into glossy plastic containers, right?

So, add two steps to that process - first, your machine also puts the glossy container into a small brown non-descript box which is appropriate for posting.

Second, every order that comes through on your website gets printed an address sticker once the credit card details get confirmed and they get slapped onto the brown boxes automatically as they come off the conveyor.

 

After that, UPS or FedEx rolls their truck up to the manufacturing plant, takes all that mail, goes directly to their sorting center and all the orders from that evening get delivered the next day or two at the latest.

That way, the manufacturer does its core business and UPS/FedEx does its - no warehouse needed, just UPS/FedEx sorting centers of which there are probably already a few and if they built more then that could be to their advantage provided they signed up enough manufacturers.

 

On the issue of warehouses, I can tell you that from the UK, Amazon for the first decade only had two that I'm aware of - one in London and one in Glasgow.

From either of those warehouses it was possible to get same-day shipping (once they introduced it) if you ordered before 12 noon anywhere in either country provided you stumped up for it.

 

Now of course, they've grown much bigger so they're building more but all I'm wondering is that if Sony, Samsung or whoever could cut Amazon and certain stores out how much less could they charge consumers and still be profitable?

And also, how much of a discount would consumers want if they were going to wait another day or two for it to ship because UPS or FedEx only had 2 or 3 warehouses instead of 7 or 8 like Amazon?

 

I don't know unfortunately, but that's my line of thinking anyway and so to me I just have questions about their moat in some places I guess (even if there distribution efficiency is pretty incredible). 

[ItsAValueTrap]

Warehouses are getting insanely complicated nowadays.  There are trade journals dedicated to operating warehouses.  Unfortunately it's a field I don't understand that well.

 

The current situations is that Sony, Crocs, and Apple all have their own B&M stores and online stores.  Yet they still sell their products on Amazon.  I don't know how Amazon compares to their margins.  However, one advantage of Amazon is that customers actually search for stuff on Amazon.  Suppose you want to buy headphones.  You search on Amazon and look at review for headphones from Sony, Sennheiser, etc. etc.  If Sony didn't sell through Amazon, their products won't show up on Amazon and they might potentially lose sales.  Their website is valuable and is a reason why these manufacturers simultaneously sell through Amazon. 

 

On top of that, I believe that you can buy Crocs and Apple products cheaper on Amazon than the companies' other stores.  Crocs actually stopped doing discounting on its own website (to the benefit of wholesalers like Amazon), and it saw its web volumes fall.

 

*No position in Amazon.  Looks kinda overvalued.

[Guest ajc]

Warehouses are getting insanely complicated nowadays.  There are trade journals dedicated to operating warehouses.  Unfortunately it's a field I don't understand that well.

 

The current situations is that Sony, Crocs, and Apple all have their own B&M stores and online stores.  Yet they still sell their products on Amazon.  I don't know how Amazon compares to their margins.  However, one advantage of Amazon is that customers actually search for stuff on Amazon.  Suppose you want to buy headphones.  You search on Amazon and look at review for headphones from Sony, Sennheiser, etc. etc.  If Sony didn't sell through Amazon, their products won't show up on Amazon and they might potentially lose sales.  Their website is valuable and is a reason why these manufacturers simultaneously sell through Amazon. 

 

On top of that, I believe that you can buy Crocs and Apple products cheaper on Amazon than the companies' other stores.  Crocs actually stopped doing discounting on its own website (to the benefit of wholesalers like Amazon), and it saw its web volumes fall.

 

*No position in Amazon.  Looks kinda overvalued.

 

All fair points and I think you're probably right about their brand position too.

 

Also agree that it's perhaps quite overvalued here, and as well as that I do wonder about the fact that they're not far more vertically integrated - say like Coca Cola.

Occupying that space between manufacturer and shipper for me doesn't look like it's entirely conducive to moat building, though I wouldn't mind at all if Amazon ended up proving otherwise.

[siddharth18]

Warehouses are getting insanely complicated nowadays.  There are trade journals dedicated to operating warehouses.  Unfortunately it's a field I don't understand that well.

 

Regarding warehouses - have you looked at Kiva Systems Inc? Amazon acquired them a while back and they are currently the leading warehouse solution provider.

 

The bigger point here I think is that - if Amazon can't beat someone (think Soap.com/Diapers.com Kiva Systems), it will acquire them. Another reason why I think they are at the top of their game.

[ItsAValueTrap]

It's complicated right?

 

Apparently these robots can't handle every task (which is mentioned in the article that bashes Amazon in the UK).  So Amazon needs to develop (presumably custom) computer programs to handle a hybrid of the robots and human pickers.

 

There are other weird things about warehousing.  It's good to have a big warehouse where you have lots and lots of items in your catalogue under one roof.  This way you can handle an order in one shipment (amazon will sometimes break orders up into more than one shipment for various reasons).  But eventually the warehouse gets so big that it takes a long time to go from one end of it to the other.  So then you need to take steps to keep the traveling distances manageable.

 

The article posted earlier suggests a huge amount of sophistication on Amazon's part.  They are grinding out all these little tiny efficiencies that add up.

 

2- I really do think that Bezos knows what he is doing.  When it comes to online retailing, scale is an advantage.  Your software development and IT costs are close to fixed.  (*Making software scale for a larger number of users does take a little extra work.  But as your number of users go up, your software development cost per user goes down a lot.)  You get volume discounts for handling lots of sales.  Your brilliance doesn't get watered down with size (unlike investing); size isn't an anchor.  You can get bigger in a cookie cutter fashion- hire more "worker drones", buy more computers, warehousing space, etc.

 

Another advantage is shipping multiple items in one shipment.  I can buy a kettle and a book at the same time.  This is more efficient that buying a book from one online retailer and a kettle from another online retailer.  The shipping cost of one package is roughly half the cost of two packages (*technically slightly more than half).  Amazon has an "unfair" cost advantage.

 

I see amazon.com crushing other online retailers for these reasons.

[Guest valueInv]

It's complicated right?

 

Apparently these robots can't handle every task (which is mentioned in the article that bashes Amazon in the UK).  So Amazon needs to develop (presumably custom) computer programs to handle a hybrid of the robots and human pickers.

 

There are other weird things about warehousing.  It's good to have a big warehouse where you have lots and lots of items in your catalogue under one roof.  This way you can handle an order in one shipment (amazon will sometimes break orders up into more than one shipment for various reasons).  But eventually the warehouse gets so big that it takes a long time to go from one end of it to the other.  So then you need to take steps to keep the traveling distances manageable.

 

The article posted earlier suggests a huge amount of sophistication on Amazon's part.  They are grinding out all these little tiny efficiencies that add up.

 

2- I really do think that Bezos knows what he is doing.  When it comes to online retailing, scale is an advantage.  Your software development and IT costs are close to fixed.  (*Making software scale for a larger number of users does take a little extra work.  But as your number of users go up, your software development cost per user goes down a lot.)  You get volume discounts for handling lots of sales.  Your brilliance doesn't get watered down with size (unlike investing); size isn't an anchor.  You can get bigger in a cookie cutter fashion- hire more "worker drones", buy more computers, warehousing space, etc.

 

Another advantage is shipping multiple items in one shipment.  I can buy a kettle and a book at the same time.  This is more efficient that buying a book from one online retailer and a kettle from another online retailer.  The shipping cost of one package is roughly half the cost of two packages (*technically slightly more than half).  Amazon has an "unfair" cost advantage.

 

I see amazon.com crushing other online retailers for these reasons.

 

- Their digital good revenue including books, music, movies (30% of total, IIRC) are vulnerable to the likes of Google, Apple and Netflix.

- Their device revenues which include the Kindle devices are vulnerable to Google and Apple.

- They are probably going to be introducing a smartphone and a set top box which means those revenue streams will be added risk too

- Their cloud business is in the midst of a price war and is vulnerable to Google, Microsoft and others.

- Part of their retail business is vulnerable newer business models that are gain traction including Fab.com, One Kings Lane, Gilt Group, Ideeli and others.

 

The part that is protected by their scale moat is what is left.

 

[Liberty]

http://www.nytimes.com/2013/08/05/business/workers-of-amazon-divergent.html

 

European labor issues.

[Guest ajc]

In defense of Amazon and Jeff Bezos

 

FORTUNE -- The news Monday that the Washington Post has been purchased by Jeff Bezos, the founder and CEO of Amazon (AMZN), has launched hundreds of stories and tweets -- including Andy Borowitz's Amazon Founder Says He Clicked on Washington Post by Mistake.

 

Nothing gets the chattering classes chattering like the sale of a storied newspaper -- especially when it follows so closely the sale of two other name brand journalistic outlets, Newsweek and the Boston Globe.

 

But of those hundreds of stories, the piece that is most relevant to Apple investors is the one by Michael Moritz, the former Time correspondent who wrote The Littlest Kingdom, the first inside story of Steve Jobs' Apple, and went on to become one of Silicon Valley's most successful venture capitalists (Google, Yahoo!, PayPal, YouTube, etc.).

 

As readers of this column know, Amazon is one of the companies most often compared by investors with Apple and found wanting.

 

Moritz uses Bezos' WashPo purchase as an opportunity to set those Apple investors straight...

 

http://tech.fortune.cnn.com/2013/08/06/apple-amazon-bezos-moritz/ (the Fortune article)

 

 

 

and the aforementioned 1,700 word Michael Moritz (Sequoia Capital, Chairman) piece,

 

Stop The Presses: A New Media Baron Appears

 

http://www.linkedin.com/today/post/article/20130805231302-25760-stop-the-presses-a-new-press-lord-appears

[Grenville]

In defense of Amazon and Jeff Bezos

 

FORTUNE -- The news Monday that the Washington Post has been purchased by Jeff Bezos, the founder and CEO of Amazon (AMZN), has launched hundreds of stories and tweets -- including Andy Borowitz's Amazon Founder Says He Clicked on Washington Post by Mistake.

 

Nothing gets the chattering classes chattering like the sale of a storied newspaper -- especially when it follows so closely the sale of two other name brand journalistic outlets, Newsweek and the Boston Globe.

 

But of those hundreds of stories, the piece that is most relevant to Apple investors is the one by Michael Moritz, the former Time correspondent who wrote The Littlest Kingdom, the first inside story of Steve Jobs' Apple, and went on to become one of Silicon Valley's most successful venture capitalists (Google, Yahoo!, PayPal, YouTube, etc.).

 

As readers of this column know, Amazon is one of the companies most often compared by investors with Apple and found wanting.

 

Moritz uses Bezos' WashPo purchase as an opportunity to set those Apple investors straight...

 

http://tech.fortune.cnn.com/2013/08/06/apple-amazon-bezos-moritz/ (the Fortune article)

 

 

 

and the aforementioned 1,700 word Michael Moritz (Sequoia Capital, Chairman) piece,

 

Stop The Presses: A New Media Baron Appears

 

http://www.linkedin.com/today/post/article/20130805231302-25760-stop-the-presses-a-new-press-lord-appears

 

Thanks for posting both.

[Liberty]

http://ben-evans.com/benedictevans/2013/8/8/amazons-profits

[Guest ajc]

http://www.fastcompany.com/3014817/amazon-jeff-bezos

 

A rose-tinted, but at the same time pretty interesting piece about Amazon Fresh and the potential future prospects for the company (and retail industry) as a whole.

 

The writer interviewed Jeff Bezos for it, so a fair amount of his perspective is represented here and some of it is frankly quite awesome.

 

Based on this, I'm starting to wonder if UPS/FedEx might perhaps be a smart way to bet on the disruptive changes taking place in retailing.

[ItsAValueTrap]

The trend towards more online shopping has been going on for several years, yet it doesn't seem to have helped UPS or Fedex become crazy profitable.  Look at the performance of UPS, Fedex, and Amazon over the past several years.

 

I think the wealth will mostly go to Amazon and Google (companies that sell goods and services online often advertise on google; some of these things can't be sold through amazon).  Ebay may do ok.  I think a lot of online retailers will be hurt badly by amazon... if they don't have a niche, amazon will steamroll them.

[Guest ajc]

More about AmazonFresh, this time from NYC.

 

 

Amazon’s Secret Plan to Sell You Everything!

 

"Something strange is happening in the township of Woodbridge, New Jersey, just 20 miles outside of Manhattan. It started when a real estate development partner of Amazon.com purchased a nearly one-million square foot warehouse. The previous tenant was a grocery wholesaler and so the building is equipped with refrigeration. Now Amazon (AMZN) has quietly posted job listings for facility and operation managers in the area.

 

Last week a research analyst put the pieces together and came to the conclusion that Amazon.com is going to expand AmazonFresh into New York City. That means Amazon.com will be taking orders and providing same-day delivery to the nation's largest market. That may not mean much yet, but it suggests that the way eight million people buy groceries is about to change forever..."

 

http://finance.yahoo.com/blogs/breakout/amazon-secret-plan-sell-everything-113211742.html

[Guest hellsten]

More about AmazonFresh, this time from NYC.

 

 

Amazon’s Secret Plan to Sell You Everything!

 

"Something strange is happening in the township of Woodbridge, New Jersey, just 20 miles outside of Manhattan. It started when a real estate development partner of Amazon.com purchased a nearly one-million square foot warehouse. The previous tenant was a grocery wholesaler and so the building is equipped with refrigeration. Now Amazon (AMZN) has quietly posted job listings for facility and operation managers in the area.

 

Last week a research analyst put the pieces together and came to the conclusion that Amazon.com is going to expand AmazonFresh into New York City. That means Amazon.com will be taking orders and providing same-day delivery to the nation's largest market. That may not mean much yet, but it suggests that the way eight million people buy groceries is about to change forever..."

 

http://finance.yahoo.com/blogs/breakout/amazon-secret-plan-sell-everything-113211742.html

 

Thanks. According to the author, Amazon seems to be doing everything right:

If Amazon can pull off same-day grocery delivery in NYC, it ostensibly means consumers can order anything online and receive it the same day. By logical extension, that means Jeff Bezos, the CEO of Amazon, is on the cusp of rendering every retailer on earth obsolete.

…

It marks the beginning of the end of shopping as the whole world knows it; malls will collapse, chains will disappear. "Running errands" will no longer mean jumping from the grocery store to the pharmacy and then to the mall.

 

Bezos has been called the best CEO by Warren, so I don't doubt that Amazon is doing things right:

http://indiatoday.intoday.in/story/amazons-bezos-best-ceo-in-us-says-warren-buffett/1/298248.html

 

Amazon and Bezos are very different from Sears and Lampert, but they both seem to have a "secret plan". Maybe Bezos can use the inflated share price to buy Lampert's Kmarts and turn them into warehouses…

[Guest valueInv]

There are perils to building castles in the air:

 

http://www.roughtype.com/?p=2296

[Guest ajc]

Amazon Ramps Up $13.9 Billion Warehouse Building Spree

 

"Amazon.com Inc. (AMZN) is stepping up a warehouse building spree, signaling the urgency of getting products to customers more quickly amid rising competition from EBay Inc. (EBAY) and Wal-Mart (WMT) Stores Inc.

 

Consider Amazon’s center in Chattanooga, Tennessee, which opened in 2011 after about 10 months, compared with as much as two years for older warehouses. Boasting more space and technology that makes it easier to find items, the building is part of Amazon’s almost $13.9 billion spending binge on 50 new facilities since 2010. That’s more than the company spent on warehouses in its lifetime and brought the total to 89 at the end of 2012. Amazon has announced five more in the U.S. this year..."

 

http://www.bloomberg.com/news/2013-08-20/amazon-ramps-up-13-9-billion-warehouse-building-spree.html

[Guest hellsten]

$13.9 billion ($278 million on average per warehouse) and they only have 15% coverage of the U.S.

 

I wonder how much of $278 million is technology? I guess Wal-Mart and Sears don't have to spend $278 million per warehouse to compete, but they definitely have to upgrade the technology.

 

Buying a retailer without good management is like buying the Eiffel Tower without an elevator.

…

Retailing is a tough business.  During my investment career,

I have watched a large number of retailers enjoy terrific growth

and superb returns on equity for a period, and then suddenly

nosedive, often all the way into bankruptcy.  This shooting-star

phenomenon is far more common in retailing than it is in

manufacturing or service businesses.  In part, this is because a

retailer must stay smart, day after day.  Your competitor is

always copying and then topping whatever you do.  Shoppers are

meanwhile beckoned in every conceivable way to try a stream of

new merchants.  In retailing, to coast is to fail.

…

For example, if you were smart enough to buy a network TV station

very early in the game, you could put in a shiftless and backward

nephew to run things, and the business would still do well for

decades.  You'd do far better, of course, if you put in Tom

Murphy, but you could stay comfortably in the black without him.

For a retailer, hiring that nephew would be an express ticket to

bankruptcy.

…

    The two retailing businesses we purchased this year are

blessed with terrific managers who love to compete and have done

so successfully for decades.

 

http://www.berkshirehathaway.com/letters/1995.html

[ItsAValueTrap]

Online retailing may have different drivers than bricks and mortar retailing.  I do agree with Buffett that management is extremely important when it comes to bricks and mortar retailing.

 

Your competitor is always copying and then topping whatever you do.

With online, I think that scale is an advantage for Amazon and will eventually turn into a moat. 

 

Amazon's scale is something that can't be copied.  When the consumer can buy multiple items (items in different categories so not just books) and pay less for shipping, it's a huge advantage for Amazon.  Online retailing is mostly about price... and Amazon will likely have cost advantages that can't be duplicated.  This is an unusual advantage that no bricks and mortar retailer enjoys.  (You could make the argument that Walmart has an advantage due to its scale, but its Sam's Club loses to Costco and Walmart is getting beat by smaller retailers like Tractor Supply.  Amazon's moat is far stronger.)

[fareastwarriors]

http://www.bloomberg.com/news/2013-08-20/amazon-ramps-up-13-9-billion-warehouse-building-spree.html

 

Amazon Ramps Up $13.9 Billion Warehouse Building Spree

[JHelg]

I don't think Amazon's moat is as impenetrable as many think.

 

I think there are a lot of retailers that will be willing (or forced) to take a hit on gross margin to stay relevant. See e.g. this article today from the Wall Street Journal http://blogs.wsj.com/corporate-intelligence/2013/08/19/a-problem-for-jeff-bezos-the-mall-is-becoming-cheaper-than-amazon/?mod=WSJ_hppMIDDLENexttoWhatsNewsSecond.

[Guest ajc]

@hellsten

 

"I wonder how much of $278 million is technology? I guess Wal-Mart and Sears don't have to spend $278 million per warehouse to compete, but they definitely have to upgrade the technology."

 

Good point, on this and the management (which with retail, tech and a few others is more key than usual I think).

I'm spit-balling this, but from the warehouse and distribution chapters in Sam Walton's autobiography (which is admittedly dated) and from my own experience, having worked in one of Amazon's UK warehouses, I'd say there are big differences between most of the warehouses that WalMart and Sears own and Amazon's.

 

For example, as far as I'm aware your typical warehouse for distribution to stores is done on a pallet-by-pallet basis.

So the manufacturer, will drop a truckload full of pallets of the same product at one end of the warehouse into the recieving dock.

This gets scanned, logged, etc. A forklift then takes it to the 4 or 5 level high storage bay where they park it in a barcoded section and then go back for another load.

 

At the same time, stores are sending in their requirements and so another bunch of forklift drivers from the dispatch section will be sent by computer to individual pallets of x product from that same storage bay and deliver those to your distribution trucks that are sat waiting at the other end of the warehouse.

Essentially then, trucks full of the same pallets arrive on one end and trucks leave on the other end all with a variety of pallets for the stores they're going to.

That right there is a very basic inventory/distrbution system which even though it was revolutionary when computers were added to stores, warehouses and suppliers 30 years ago is very different to what Amazon are doing.

 

This is where I'm speculating but my guess is that the vast majority of WalMart's warehouses are still of this variety because that's by far the primary way they sell their products.

 

Amazon on the other hand is far more complex.

To answer your question about how much of that is technology, I'd guess between 80 and 90 percent (so $220m to $250m or so). If you ever go inside one, you'll know why.

The place is basically an empty aircraft hangar the size of 3 or 4 football fields. The first quarter is the loading and receiving section.

The trucks full of pallets come in (I'd say about half are all the same product and half are mixed products) and the forklift drivers drop them next to a line of receivers all with their own computer, scanner and totes.

All those folks then need to process about 200 items per hour which involves deboxing all the products, scanning the barcode so it's logged and placing about 10 or 20 into each tote.

 

Once, that's done you scan the tote which has its own unique barcode and then push it onto the conveyor. So then, the system knows that tote XYZ500001 has precisely 16 items in it and what those items are.

Now, the conveyor takes the totes along and up to your 5 level storage facility which is full of packers.

The packers all have trolleys which have space for 2 totes and they take them off the conveyor, scan their first tote, then the first product and their handheld tells them to go to row14A shelf Q4. They do that, scan the shelf, scan the product, place it there, press enter and then repeat the procedure.

 

This storage part takes up 2 football fields worth. In this same storage space you have pickers going round also with trolleys, scanners and empty totes. Every time you or I click 'place order' online that gets routed to the closest warehouse and goes in line and will appear shortly on the scanner of a picker who will then take their trolley to whichever shelf the system directs them to, scan the shelf and product and put it into their already scanned tote.

Once their 2 totes are full, they go to the conveyors on the opposite side of the storage space and put it on (packers and pickers have to hit about 120 or 150 per hour by the way, if I remember right - more ground to cover).

 

Anyway, that conveyor goes down to packing which takes up 75% of the final football field.

Here, the totes back up on the conveyor belt and the packers walk to the end of their line and have to drag a few each to their station so there's not too much of a jam and then they have a bunch of different size packaging boxes for books, dvds, etc.

On their screens an order appears with say 3 items (which the system will have ensured are all in the same tote that's come down from the storage levels) and then they'll decide which box fits best and pack them up, the machine next to them prints a barcoded sticker and they slap that on, then in front of them there's another conveyor and they put the box onto it and it rolls away.

 

That conveyor then takes the boxes overhead and across to the final 25% of the last football field and as the boxes travel on the conveyor they get their barcodes scanned by sensors along the way so the system knows where to post them. The conveyor at this point links up with a new conveyor which has flat panels that can tilt to one side.

All the parcels, etc go individually onto one of these panels on the new conveyor belt which travels overhead this small distribution section in a sort of scrunched-up circular pattern (not sure if you ever played a PC-game called snake where you sometimes had to double back again and again not to be killed but it's something like that).

 

So then, there are about 100 wheeled-cages for different towns, suburbs, etc and whenever a box gets to the correct spot on the matrix then the panel flips and the box slides down the steel chute and lands in the cage.

When the cage fills, it's replaced by someone and they take that cage off to the truck in dock H and when that truck is full of parcels for its area it goes off and gets replaced by an empty one.

 

Anyway, you get the idea!  :D

Automation is key in an Amazon warehouse during every step whereas my understanding of regular warehouses like the ones they had across the road from the Amazon one for Bath and Home or whatever are that they still used the old pallet-in pallet-out system and if I'm not mistaken (though I'm open to correction) that is essentially the standard worldwide.

You can see however that Amazon is a completely different animal and frankly, without the technology it'd not be anywhere near as widely used.

 

Don't get me wrong, the people there work a real shift everyday/night but without the inventory system, computers, conveyors and scanners which dominate the place it's my opinion that the process would require way, way more people or alternatively would be nowhere near as quick (same day or next day delivery would be out of the question on a wide-scale without that specific technology and machinery I think it's safe to say).

 

Finally, the reason I attach such a high probability to the major cost of the technology is that besides that the warehouse is pretty much empty except for 10 or so basic offices and conference rooms, 4 bathrooms and 2 breakrooms with a small food counter in each.

That's it, lights - yes but no aircon, just concrete floors, loads of metal, etc.

Very much like a warehouse, surprisingly enough!  ;D

 

Okay, long answer I know but hopefully it's been somewhat useful.

 

Short answer is yes, you're totally right there would be upgrade costs and they'd probably be substantial since there's the actual technology and machinery costs which Amazon pays and then there's the intellectual property aspect which they'd all have to earn the hard way.

(I could've just said that in the beginning, but this has been way more fun!)

 

[Liberty]

Thanks for the inside perspetive, ajc. Very interesting!

[txlaw]

ajc, great post. 

 

AMZN continues to push the limits on automating these warehouses and distribution centers, which I think means that they are probably building the lowest cost facilities out there.  Just one of the reasons why I think AMZN has a big moat.

 

Check out AMZN's wholly owned subsidiary, Kiva Systems:

http://www.kivasystems.com/