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Amazon's Gearing Up for a Massive Q4

By Adam Levy – Sep 17, 2020 at 9:24AM

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The e-commerce giant is adding planes, warehouses, and employees in preparation for massive demand. (AMZN -0.48%) has already seen its sales grow extremely quickly through the first half of the year as the COVID-19 pandemic has pushed consumers to do more of their shopping online. But Amazon's making moves that indicate its fourth quarter could be an even bigger blowout for the leading online retailer.

Over the past few months, Amazon has leased 12 more cargo planes for its Amazon Air fleet and expanded its warehouse footprint. It's starting to hire 100,000 new workers across the U.S. and Canada, and it's planning to put 1,000 to 1,500 new small-footprint delivery hubs in suburban neighborhoods.

An Amazon Air plane in a hangar.

Image source:

More planes and more flights

Amazon leased nine new planes between May and July, according to a report from DePaul University's Chaddick Institute for Metropolitan Development. That's the most it's ever added in a three-month period. It's since added three more planes to its fleet. That brings its total fleet up to 54. It could add four more planes by the end of the year.

In addition, the report shows increased utilization of its existing planes, with the number of total flights growing more than 30% since April. The researchers saw a surge in flights in late August, with the average plane making 2.7 flights across the six days they observed last month. That's up from an average of 2.02 flights per plane on April 23, but it remains to be seen whether Amazon sustains that level of utilization.

Amazon Air currently functions as a means to distribute inventory efficiently across the retailer's network of warehouses and distribution centers. Amazon relies on its shopper data and its massive number of warehouses to position inventory close to customers' homes before they even order it. Then it can deliver items to customers quickly with its contracted fleet of vans.

A rapid footprint expansion

During Amazon's second-quarter earnings call, CFO Brian Olsavsky noted that the company plans to expand its fulfillment and logistics footprint by 50% year over year. That compares with a 15% expansion in 2019. The majority of that capacity is coming online over the next 3-4 months.

Additional fulfillment capacity not only supports more inventory during peak months in the fourth quarter, but it also ensures faster delivery for more customers. Amazon started making the shift to one-day Prime delivery last year, and as more customers get more fulfillment hubs closer to their homes, the number of products available for nationwide one-day shipping expands.

Part of Amazon's footprint expansion consists of smaller delivery hubs located in suburban areas, just a short drive from major population centers. Amazon is reportedly planning to open 1,000 to 1,500 of these hubs to support faster shipping and decrease its reliance on third-party shipping providers.

Another hiring spree

With such a massive warehouse expansion coming online, Amazon is planning to hire 100,000 new warehouse employees. It also plans to hire 33,000 new corporate positions.

These aren't seasonal employees, either. The company is still evaluating its needs beyond the 100,000 new hires for seasonal work during November and December.

The 100,000 new hires follows Amazon's 175,000 additional positions it filled earlier this year as coronavirus lockdowns and increased safety measures required Amazon to massively increase its workforce to meet demand. Amazon made 125,000 of those positions permanent in May. 

The growing pace of hiring indicates confidence in the ability to ramp up its warehouse capacity quickly. That may be fueled by its bigger fleet of planes and improved utilization to get more inventory to where it needs to be sooner. All of these factors should enable Amazon to serve the strong demand it seems to be expecting for the fourth quarter.

While the capital expenses and under-utilization of the additional plane and warehouse capacity may serve as a headwind to profitability in the third quarter, the fourth quarter could be an absolute blowout for the FAANG stock.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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