Amazon lowered annual delivery costs last year for the first time since 2018 following a move by the e-commerce giant to streamline its sprawling warehouse and delivery network, helping drive strong sales and profit during the fourth quarter of last year.
A record-breaking holiday shopping season closed out a robust year for Amazon as it shifted to a regional shipping network from a national hub-and-spoke warehouse model in 2023 as the company turned its attention to investments in its cloud computing division and artificial intelligence.
More direct links between Amazon's fulfillment warehouses and smaller delivery centers allowed the company to fill 65% more orders on the same day or next day during the fourth quarter, compared with the prior holiday season in 2022, CEO Andy Jassy told investors during the company’s fourth-quarter and year-end earnings presentation.
“The regionalization of our U.S. fulfillment network led to our fastest-ever delivery speeds for Prime members,” Jassy said.
Amazon’s profit surged to $10.6 billion in the fourth quarter, which the company said is its busiest and more-profitable time of year, from just $278 million in the same quarter the previous year. Revenue rose 14% to $170 billion for the same period in 2022.
The company made headlines in early 2022 when it announced plans to slow its real estate expansion and offer more space for sublease.
Amazon said it has also reduced its office holdings and eliminated more than 25,000 jobs over the past two years, including hundreds of layoffs announced last month at its Prime Video and Amazon MGM Studios operations.
Amazon's $48.4 billion in capital expenditure spending was down more than $10 billion year-over-year in 2023, mainly due to lower spending on fulfillment and transportation, Chief Financial Officer Brian Olsavsky told investors.
Olsavsky expects the company to ramp up spending in 2024 to support the growth of its Amazon Web Services cloud business which will include investments in generative AI.
The company, one of the biggest users of U.S. industrial real estate, reevaluated every step in the logistics process over the past year, even as it doubled the size of its fulfillment and last-mile delivery networks, Jassy said.
Amazon's decision to double the number of its same-day or next-day delivery centers in major cities across the country decreased transportation miles, helping lower the company's shipping and fulfillment costs, the CEO added.
"In 2023, for the first time since 2018, we reduced our cost to serve on a per-unit basis globally," Jassy said, referring to Amazon's measure of delivery and shipping costs. "We’re not done lowering our cost to service. We’ve challenged every closely held belief in our fulfillment network."
Amazon now plans to increase the efficiency and speed of how products enter its facilities for delivery to customers, he added.
"Our inbound fulfillment architecture and resulting inventory placement are areas of focus in 2024, and we have optimism there's more upside for us," Jassy said.