Amazon is changing its logistics structure in the face of growing pressure from American and Chinese rivals

Amazon is a constant driver of change in the e-commerce arena, forcing competitors to try to catch up with faster deliveries.

However, as the plot changed, losing ground to Walmart and low-cost Chinese players Temu and Shein, the giant was forced to change its strategy.

Over the past two years, Amazon has leased unused warehouse space as the pace of e-commerce growth has slowed, using its network to accelerate the pace of deliveries. Today, however, the company devours warehouse space with an insatiable appetite, and this year it took over more than 16 million square feet of new warehouse space in North America, adding to its already massive 413 million square feet of space.

Speed ​​is still a huge factor in strategy; and Amazon plans to double the number of its same-day delivery fulfillment centers.

At the same time, however, it is adding larger distribution facilities ranging from 600,000 to 1 million square feet. They herald a shift from the use of a centralized network to a structure encompassing nine regions, each with a high degree of autonomy.

They aim to store goods near markets to speed up delivery. At the same time, Amazon aims to reduce transportation costs, where the last mile is usually the most expensive segment.

Amazon’s repositioning in the warehouse space market is the result of increased competitive pressure led by archrival Walmart, which delivered 4.4 billion items with same-day or next-day delivery in the 12 months ending in April, surpassing Amazon’s 4 billion shipments.

Walmart’s magic wand has covered more than 4,600 stores across the United States. Their shipments accounted for nearly all of the retailer’s same-day deliveries and enabled Walmart to deliver 20% of its shipments same-day and next-day in less than three hours.

What’s more, the net shipping cost per order has increased by almost 40% in the U.S., according to Vice President and CFO David Rainey.

Walmart is also on the offensive outside its home market. In the first quarter, same-day orders in India increased by more than 150%, and within-one-hour delivery in China increased to 55 million orders.

Amazon is embroiled in a price war with Walmart and Target, which also use their retail footprint to make deliveries, noted John Haber, chief strategy officer at Transportation Insight. He added that while Walmart has cut prices on 3,000 SKUs, Target is cutting prices on 5,000 items. This time, Amazon is staying behind.

“Amazon usually sets the trend, but this move is a bit reactionary. This is a push, not a push,” Haber said.

Temu and Shein, which have sparked a wave of cheap clothing in the US, are also under more pressure. This business is aimed at a customer segment that cares about the lowest possible costs, not speed, which is prompting Amazon to reduce its cost structure, he added.

He noted that the transition to a regional structure involves some additional costs. First, inventory holding costs and warehouse expenses are rising, as are transportation costs to these distribution centers. In some cases, suppliers who have been shipping truckloads to Amazon may only require LTL to supply their regional distribution centers.

“The cost of inbound transportation of inventory increases as you move to more locations. It’s a big difference if you have three or four big DCs versus nine or 10,” he said.

Overhead costs also increase with the creation of a regional management tier to handle the increased responsibilities at this level. On the other hand, this should translate into better service, Haber added.

The regionalization strategy also adds complexity.

“You need more connectivity, you need more people talking to each other. If you don’t have supplies in your area, where will you get them? Who is responsible?” Mr. Haber asked.

He predicts that cost pressures and an increased regional focus will certainly take a toll on Amazon’s use of air freight.

“It is much more expensive to maintain the aviation network,” he said. “We will see some shrinking of the aviation network. You try to avoid flying what goes to the consumer.”