Delivery Won’t Be the Driver at Amazon

The Wall Street Journal‘s Miriam Gottfried reports:  

Amazon.com may not be taking over the entire world after all—or at least not quite all of it.

Amazon isn’t aiming to take over the last mile of delivery from the likes of FedEx, United Parcel Service or the U.S. Postal Service, but rather to “supplement it heavily,” chief Jeff Bezos said Tuesday at a conference hosted by technology website Recode. This is necessary for peak selling seasons ahead of the major gift-giving holiday in the countries in which Amazon operates, Mr. Bezos said.

Keeping up with peak demand undoubtedly will be an expensive proposition for Amazon, involving the building of more fulfillment centers and possibly even the launch of delivery drones. But that is nothing compared with what it would cost to completely supplant traditional shippers. FedEx reported more than $4.3 billion in capital expenditures in its most recent fiscal year, roughly the same as Amazon. That should cause investors to breathe a sigh of relief.

Granted, FedEx and UPS boast higher return on equity than Amazon. But a longtime bull argument for the e-commerce giant has been its ability to pare back its investment once it has become sufficiently dominant in a market, effectively flipping a switch to achieve profitability.

The day of major windfall has yet to arrive for the company’s retail business, but Amazon has been steadily profitable for the first time in years over the past four quarters as its higher-margin cloud services business continues to grow. Attempting to become the next FedEx—and to dominate that market as it has tried to do with so many others—could quickly cause those green shoots of profitability to wither and die.

For investors, Amazon’s shipping restraint may be a welcome delivery.

Ken Wood is the founder of LJM Consultants. LJM helps clients negotiate “Best in Class” UPS/FedEx agreements. LJM was recently named the “best parcel auditing company in America” and was also inducted into Inc. Magazine’s Top 500/5000 fastest growing companies in America for 2013. To learn how LJM Consultants can help your company get the parcel contract you deserve, call 631-844-9500 or email kenwood@myLJM.com.