There is always a method to Amazon’s madness. After going systematically into one big economy after another and establishing itself in the top ten economies of the world, Amazon added a few more countries before shifting its focus to smaller, but rich, countries such as Singapore and the UAE. Now, Amazon is on a fulfillment center opening spree and, even here, there is a pattern to the apparent chaos.
Why does it matter that Amazon expand its fulfillment center presence?
Fulfillment centers play a huge role in Amazon’s supply chain. This is were Amazon stores its products, picks, packs, delivers and provides after sales support as well. In case the customer sends a package back, it will head straight to the nearest fulfillment center. In fact, the only way Amazon can offer 1-hour and 2-hour deliveries in a particular city or state is if it has enough fulfillment centers to accommodate the volume of packages.
Now, flip that over and see what happens if Amazon does not have a fulfillment center in a particular state. Not only will it be impractical to land-ship products across state borders, but even if that were possible, it will be extremely expensive.
Fulfillment centers cut through that and allow Amazon to keep pushing the envelope on shipping times, while also reducing shipping costs.
What is Amazon is doing now on the fulfillment center front?
Amazon has been opening fulfillment center after fulfillment center in four major states, California, Illinois, Texas and New Jersey. One on the East Coast, one on the West Coast, one in the South and one in the Midwest. That’s four out of the six most populous states in the United States. New Jersey is actually the eleventh most populous state in the country, but its proximity to New York – the fourth most populous state in the country – is why Amazon is betting big on the state.
Amazon will be adding three more fulfillment centers in New Jersey, taking the total count to ten facilities in New Jersey.
Around the end of March, Amazon announced its plans to open its tenth fulfillment center in Texas. Amazon had seven existing facilities, in Coppell, Haslet, Dallas, Fort Worth, Schertz and San Marcos, while two facilities – in Houston and Coppell – were under construction, and the one planned in Katy will take the total count to 10 across the State of Texas.
Similarly, in California, where Amazon had nine operational facilities, the company was constructing one on Sacramento and announced the plan to add two facilities, in Eastvale and Redlands, California, taking their total count in the state to ten.
Illinois has not yet reached the magical ten mark, but it is nearly there. Amazon is planning to open two fulfillment centers in Aurora, Illinois taking the total count in the state to eight facilities.
You can clearly see how company executives in Seattle, Washington, are mapping the continental United States with their fulfillment center plans. We believe there is something bigger at hand, simply because these moves allow the online retail and technology company to cover the majority of America’s population with their quick delivery options.
And what is the one item group that requires 1-hour and 2-hour delivery options to really work? Groceries, of course!
So, all of this activity around fulfillment centers is focused on their ability to hit the grocery market really hard this time. They’ve been at it for the past decade, but the company has finally realized that a widespread physical footprint is what allows brick and mortar chains to rule the grocery segment – one that’s currently worth more than $600 billion in the United States.
But when will Amazon start to hit the grocery market in a big way? It could take several months for the company to build out its fulfillment center presence around the country, even years. However, we suspect that, as soon as it reaches a particular critical footprint it has surely identified by now, the company’s online grocery initiatives are going to expand in a big way.
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