Amazon Goes Big in Texas

Everything is bigger in Texas. And Amazon.com's (NASDAQ: AMZN  ) growth plans are no exception.

After operating for more than a year with no distribution centers in the Lone Star state, Amazon is opening three new fulfillment warehouses there, comprising 3.3 million square feet of space for processing online orders.

That's a big flip from 2011, when Amazon closed its Dallas-based fulfillment center over a tiff about collecting taxes. Amazon said at the time that it left because of the state's "unfavorable regulatory environment."

But there will likely be more warehouses to come, both in Texas and around the country. Amazon has made deals to collect taxes in several new states, removing one big potential roadblock to adding physical warehouse locations. And the e-retailer has already opened 20 new facilities in just the last year. CFO Tom Szkutak said that was all in a bid to get "closer and closer to customers with a lot of great selection."

What he didn't say was that Amazon needs those new facilities so that it can fend off rising competition. eBay (NASDAQ: EBAY  ) , for one, has been running a same-day delivery service in San Francisco and parts of New York that could challenge Amazon's dominance in major metro areas. eBay's model is to partner with local businesses, who are already close to the customer, and get them their products within hours of ordering. Wal-Mart (NYSE: WMT  ) is jumping into the same-day game, too. The megaretailer has been testing the use of its 4,000 stores as mini distribution centers.

Amazon doesn't have the cozy relationship with brick-and-mortar retailers that eBay does. And at just over 40 fulfillment centers in the U.S., the company doesn't come close to Wal-Mart's expansive geographic footprint. So Amazon needs to keep building out warehouses until it can reach a critical mass of consumers within one or two days from their order.

Still, Amazon is already seeing the benefits of all the added locations. Net shipping costs fell to 4.5% of sales in the holiday quarter, down from 5.4% a year ago. With solid results like that, investors can expect the company to continue investing in many more warehouses.

What else can you expect from Amazon? Find out what's driving the company's growth, as well as reasons to buy and reasons to sell Amazon, in our new premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.


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8/29/2014 11:49 AM
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