From the web report:
"AMAZON EFFICIENCY STUDY: NO MEANINGFUL IMPROVEMENTS
As regular readers know, we have been monitoring Amazon.com's
fulfillment performance to help us answer the Amazon Conundrum:
Can "Earth's Biggest Selection" translate into long-term profits?
In the second phase of our study, we continue to see the need for
improvement in critical operations of the Web's largest retailer.
We believe our findings lend credence to our concerns that
Amazon's huge product assortment coupled with its dispersed
distribution network makes it very difficult for it to optimize
inventory loads. The results also confirm our concerns about
Amazon's promotional strategy: By trying to drive larger,
multicategory orders (the subject of our study), Amazon could be
sacrificing fulfillment efficiency for top-line performance.
While the overall customer experience was still great, results
from Phase 2 show increased split shipments (a single order
shipped in multiple packages, with customers charged for only
one) and long-haul shipments (packages not shipped from the
closest distribution center). During Phase 2 we also expanded the
scope of our study from large (eight or nine items) orders for
West Coast delivery to include smaller "gift" orders and those
made to East Coast destinations. To our surprise, Amazon was less
efficient on an item-per-shipment basis at fulfilling the smaller
orders, but realized slightly positive shipping margins,
according to our estimates (compared to negative shipping margins
on larger orders). Both our East and West Coast orders included
numerous split shipments. However, a higher percentage of our
West Coast orders were sent via long hauls, or from more distant
distribution centers. All that said, we still expect Amazon to
meet its Q4 targets, but we recommend that investors look beyond
Q4 results for indications of Amazon's ability to achieve
sustainable long-term profits.
WILL AMAZON'S DELIGHT-O-METER DELIGHT INVESTORS?
Speaking of Amazon's top line, a new site feature called the
"Delight-O-Meter" promises to be an interesting item for
investors this holiday season. The D.O.M. tracks in real time the
number of items sold on Amazon's site since November 2. While
more relevant than the ubiquitous weekly usage statistics, we
question how effective the D.O.M. can be as an indicator of total
Q4 revenue. For example, while Amazon provides the selling prices
of the top-selling items in each product category, it provides no
insight into the cross-category product mix. As a result, it is
difficult to estimate the average revenue associated with each
uptick of the D.O.M. Investors should note that Amazon's core
businesses of books, music and videos, which we expect to account
for roughly 60% of Q4 revenue, currently has an average selling
price of only $18.62, well below the ASPs for most other
categories.
Taking these issues into consideration, we estimate the D.O.M.
needs to rack up 50 million items by New Year's to meet our
$1-billion sales estimate. At last glance, the D.O.M. was at 10
million, or roughly 500,000 items sold per day. To get to that 50
million, Amazon would need to double daily volume! While this
could be a reasonable expectation given that we are approaching
the heaviest shopping period, we wonder if Amazon's current free
shipping promotion has cannibalized December sales by attracting
shoppers in November. " |
