Amazon’s net loss prompts query: Has it built too many warehouses?

An Amazon employee prepares an order during a tour of the advanced robotics facility fulfillment centre, YHM1, in Hamilton, Ontario, Canada April 19, 2022.

In recent years, Amazon has spent billions of dollars on new warehouses that cut into profits, explaining to investors that it had no choice but to meet ever-rising consumer demand.

Analysts say that Amazon may have built too much.

Two years ago, when Amazon had to turn away merchants because it had room only for vital supplies, the company reported $2 billion in costs from excess fulfillment and transportation capacity.

Brian Olsavsky, the company's Chief Financial Officer, said that the capital expenditure plans were being lowered. Amazon will spend less on fulfillment this year than it did last year.

The new reality began to emerge in 2021. Amazon was on track to double its warehouse and delivery network, a feat necessitated by consumers' embrace of at- home shopping to avoid infections in stores. For the first time, space was not the retailer's main constraint, it was labor to staff facilities fully. 270,000 workers were hired by Amazon in six months.

Consumer demand fell after the Christmas holiday. Amazon's results show that online sales fell from a year ago. After the Omicron wave subsided, brick-and-mortar stores beckoned shoppers, while others had a choice between buying goods and filling their cars with high-priced gas. Amazon says the order patterns have not changed.

Olsavsky told reporters that the company appeared to be overbuilt for current demand, but later told analysts that many of the build decisions were made 18 to 24 months ago.

David Glick, a former vice president at Amazon and now chief technology officer at Flexe, said that extra space was not a major challenge.

He said that Amazon will grow into that excess capacity over the next year. Buy with Prime is a program for Amazon to store and ship goods that independent merchants sell to consumers.

Michael Pachter said that Amazon will eventually need these warehouses. Amazon's disclosure gave little solace.

Pachter noted how Amazon doubled over two decades of capacity in just 24 months.

The company's first net loss since 2015 was caused by a decline in Amazon's shares in Rivian.