February 4, 2013
Amazon has begun to shift from directly selling products to customers due to its success with third party sales. The practice of fulfilling third party sales will continue to grow, and could become the entirety of Amazon’s business plan eventually. Third party sales now account for 39 percent of Amazon’s sales, and massive distribution centers show Amazon’s continued transition.
Amazon CFO Tom Szkutak stressed the importance of third party distribution in a recent earnings call with analysts. Szkutak explained how total Amazon sales grew 32 percent while third party sales grew 40 percent.
The third party program, Fulfillment by Amazon, allows anyone to join Amazon and outsource warehousing, shipping and returns. Amazon opened 20 massive fulfillment centers last year and has more planned in San Francisco and Texas this year. The centers have more than 1 million square feet, making them optimal for huge amounts of storage.
“By investing so much in shelf space, Amazon has every incentive to keep those shelves filled. And the more third party stuff Amazon can move through its distribution hubs, the better, since that’s all inventory Amazon doesn’t have to pay for itself,” explains Wired.
“As analysts at Baird Equity Research point out, third party sales are 100 percent gross margin for Amazon. In other words, the only cost to Amazon of providing third party fulfillment is money they would have spent anyway on the infrastructure, labor, transportation and whatever else they need to support their direct sales operation.”