Many aspiring entrepreneurs have dreamed of riding Amazon's wave to financial freedom. However, recent developments have served as a stark reminder that the era of rapid expansion is over, and a leaner, more efficient approach is now the priority. As Amazon implements its cost-cutting measures, sellers must adapt to navigate these changes and seize new opportunities.
Amazon's Downsizing: Warehouse Closures and Delayed Projects
Data from logistics firm MWPVL reveals that Amazon is aggressively scaling back its delivery operations. The company has closed or halted plans for 42 facilities, totaling approximately 25 million square feet of space. In Europe, several projects—primarily in Spain—have been canceled.
More concerning for sellers is Amazon's decision to postpone the opening of 21 planned locations, covering nearly 28 million square feet. This shift forces sellers who relied on Amazon's expansion to rethink their strategies.
Last week, Amazon informed Maryland officials that it would shut down two FBA delivery stations next month, leaving 353 employees without jobs. While Amazon has offered to transfer affected workers to nearby facilities, the move signals a broader trend toward operational streamlining.
Notably, Amazon's approach to warehouse closures varies. Smaller FBA delivery stations are being shuttered outright, while larger fulfillment centers are being phased out gradually by halting new inventory intake and allowing contracts to expire. Though less abrupt, this method still poses challenges for FBA-dependent sellers.
From Expansion to Efficiency: Amazon's Strategic Shift
In previous years, Amazon ramped up hiring in the fall and spring to prepare for major sales events like Prime Day and Black Friday. This year, however, the company has cut jobs instead of adding them, raising concerns about holiday season logistics.
Amazon spokesperson Maria Boschetti stated that the company evaluates multiple factors when deciding where to develop future sites to best serve customers. She noted that Amazon has dozens of fulfillment centers, sortation centers, and delivery stations under construction or development worldwide, with timelines adjusted based on network needs. While carefully worded, her comments underscore Amazon's strategic realignment.
During the pandemic, surging online demand led Amazon to double its logistics network in just two years. At one point, the company opened a new U.S. warehouse roughly every 24 hours. But this rapid growth came at a cost.
CEO Andy Jassy has since pledged to reverse some of this expansion, as excess warehouse space and overstaffing have become financial burdens. In Q1 2022, Amazon reported a net loss of $3.84 billion, followed by another $2.03 billion loss in Q2 despite $121.2 billion in revenue. To cut costs, Amazon has subleased warehouses, terminated leases, and delayed construction.
From Q1 to Q2, Amazon reduced its workforce by 99,000 employees—a record decline—primarily through layoffs at warehouses and delivery centers. Though July saw Amazon's slowest growth rate in over two decades, better-than-expected earnings sent shares up 12%. Jassy noted progress in controlling costs, particularly in improving fulfillment network productivity.
How Sellers Can Adapt to Amazon's Changes
Amazon's downsizing presents several challenges for sellers:
- FBA inventory limits: Warehouse closures may restrict storage capacity, complicating holiday season preparations.
- Unreliable delivery times: Reduced staffing and facilities could delay shipments, hurting customer satisfaction and repeat purchases.
- Higher operating costs: Alternatives like third-party warehouses may increase expenses.
To mitigate these risks, sellers should consider the following strategies:
- Diversify inventory management: Supplement FBA with overseas or third-party warehouses to reduce reliance on Amazon.
- Optimize supply chains: Improve coordination with suppliers to maintain adequate stock levels.
- Enhance product quality and service: Superior offerings and customer experiences can boost loyalty.
- Expand sales channels: Explore independent websites or social media platforms to diversify revenue streams.
- Stay informed and flexible: Monitor policy changes and adjust strategies accordingly.
The Rising Importance of Overseas Warehouses
As Amazon tightens FBA restrictions, overseas warehouses offer a viable solution. They provide additional storage, faster shipping, and lower logistics costs, granting sellers greater flexibility.
Despite delays and closures, Amazon continues developing new facilities, including a major distribution center in Niagara, New York. With reduced storage capacity ahead of peak season, many sellers are turning to overseas warehouses as an alternative.
Conclusion: Adapting to Thrive
Amazon's strategic shift presents both obstacles and opportunities. Sellers who embrace change, optimize operations, and explore alternatives will be best positioned to succeed. In a dynamic marketplace, adaptability is key to long-term growth.