- The cost of transitioning standard Amazon Prime shipping time from two days to one cost more than the $800 million the company forecasted in April, CFO Brian Olsavsky said on the company's second-quarter earnings call Thursday.
- Olsavsky didn't specify how much the costs exceeded expectations in the second quarter, adding that in future quarters the company will not break out the expense on its own. He said the main cost drivers were related to transitioning warehouses, buying more inventory and moving it around the network nearer to customers. These costs will continue for several quarters, he said, and will be incorporated into future financial guidance from the company.
- "It does create a shock to the system. We're working through that now. We expect we'll be working through that for a number of quarters, but when the dust settles, we will regain our cost efficiency over time,"Olsavsky said. One-day shipping will remain the biggest factor in next quarter's operating expenses, he said.
Amazon's second-quarter earnings missed expectations as profit growth slowed after several quarters of expansion. Profits rose 3.6% in the second quarter.Fulfillment costs for the quarter ending June 30 were up nearly 17% while revenue grew 20% year-over-year.
Amazon said in Maythat within the warehouse walls, operations to support the transition from two-day Prime shipping to one-day would be minimal. But throughout the network, it's clear inventory placement is a key factor to enable faster shipping, which Amazon is still working to optimize.
At least in the U.S., the one-day offering is resonating with customers, Olsavsky said. "We are attributing a good bit of the revenue growth acceleration from 17% in Q1 to 20% in Q2 to the rollout of one-day and the impact of that," he said.
In the U.S., Amazon is somewhere in the middle of the transition,Olsavsky said,but internationally, the work of one-day shipping is in much earlier stages.
Part of the additional cost associated with the transition was unused capacity in warehouses and delivery networks, the CFO said. "We saw some lower productivity as we were expanding rather quickly," he said.
One analyst on the call expressed concern about having enough capacity to continue to deliver at one-day speeds during peak season, which Olsavsky dismissed.
"We are confident that we will have the ability to handle seasonal demand," he said."We are working very hard to expand our one-day capacity, add carriers, add delivery partners at our own [Amazon logistics]capability and have our partners expand their capabilities as well." Amazon recently purchased 2,000 additional delivery vans from Sprinter for last-mile deliveries.