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Amazon’s Fulfillment Centers: What’s the Benefit?

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FBA distributed 1 billion items worldwide

Amazon provides sellers with an advanced fulfillment network that allows businesses to store their products in Amazon Fulfillment Centers. Fulfillment by Amazon (or FBA) helps businesses scale their logistics and reach more customers by providing a set of services from picking goods to providing customer service.

During 4Q15, Amazon saw a significant growth in Amazon Prime. On Cyber Monday alone, about 23 million items were ordered globally. FBA distributed around 1 billion items worldwide in 2015. FBA’s integration with Prime service allows Amazon to provide their Prime users with an array of products in demand, which in turn increases its tie-ups with sellers. The graph below shows that the Fulfillment expense percentage of sales contributes around 12%, which is the highest among other cost elements.

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Global expansion

The FBA active seller growth has seen an increase of more than 50% in 2015 compared to an increase of about 65% in 2014. FBA allows cross-border selling, where sellers from 100 countries can sell their products to fulfill customer orders from 185 countries. FBA has also strengthened its hold in the United States where domestic Prime members can utilize free same-day delivery in 750 cities across 16 US metropolitan areas.

FBA demand during 4Q15 remained high, which constitutes approximately 50% of third-party units. As a result, the company incurred an additional cost for further expansion due to an increase in demand for space and services offered to sellers in the United States. However, the fulfillment cost per unit has decreased year-over-year, according to the company.

The PowerShares NASDAQ Internet (PNQI) is a portfolio of 94 stocks. Its four top stocks are Amazon (AMZN), Alphabet (GOOG), Facebook (FB), and Netflix (NFLX), which constitute 9.1%, 8.7%, 8.3%, and 7.5% of the fund, respectively.

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