In recent years, Amazon has spent billions of dollars on new warehouses and slashed profits, to investors that it has no choice but to meet consumer demand.

Analysts say it turns out that Amazon may have been built too soon.

On Thursday, the world’s largest online retailer reported a $2 billion (Rs 15,300 crore) increase in costs due to excess fulfillment and shipping capacity, in contrast to Amazon having to turn away merchants two years ago because they only had space Commodities have undergone tremendous changes compared to important materials.

The company is reducing its capital spending plans for 2022, Chief Financial Officer Brian Olsavsky said. Amazon will spend less on fulfillment projects this year than it did last year, while transportation investment will be flat or down slightly.

A new reality begins to emerge in mid-2021. Amazon is on track to double its warehouse and delivery network, a feat necessary for consumers to embrace shopping from to avoid COVID-19 infections in stores. For the first time, space isn’t a major limiting factor for retailers; it’s all about labor on staff facilities. At Amazon’s scale, that means hiring 270,000 workers in six months.

After the Christmas holiday, consumer demand has been reduced as always. Amazon’s results showed that online sales were down from a year ago. Brick-and-mortar stores beckon to shop once the Omicron wave subsides, but others are still faced with a choice between buying something and fueling their car. Amazon said the order pattern remains the same.

Still, Olsavsky told reporters that the company appears to be “overbuilding for current needs.” He said Amazon had no regrets, telling analysts later: “Many of the build decisions were made 18 to 24 months ago, so there’s a limit to what we can adjust in the middle of the year.”

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The extra space isn’t much of a challenge, says David Glick, a former Amazon vice president who is now chief officer at on-demand delivery company Flexe.

“Amazon may have a bit of a head start in fulfillment capacity, but they will grow to excess capacity over the next year,” he said. A new Amazon program for storing and shipping items sold directly to consumers by independent merchants, called Buy with Prime, may also help.

Wedbush Securities analyst Michael Pachter agrees that Amazon will eventually need these warehouses. But Amazon’s disclosure offered little consolation.

“When they built all these fulfillment centers, didn’t they see it all?” Pachter asked, noting how Amazon quadrupled capacity in just 24 months. “Why not do it at 48?”

Operating income fell 59 percent to $3.7 billion (Rs 28,313 crore) in the first quarter, while Amazon’s falling stake in electric car maker Rivian led to the company’s first net loss since 2015.

© Thomson Reuters 2022

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