Amazon to Open Fulfillment Center in Washington - Analyst Blog

Amazon.com Inc. AMZN, the world's largest online retailer, announced that it will build a fulfillment center in Kent, WA. This will be the company's fourth fulfillment center in the state and join the ones already operational in Sumner and Bellevue and the DuPont facility, which is on the verge of completion.

According to Amazon, the one million-square-foot center will create hundreds of full-time jobs in the town.

At the facility, Amazon employees will pick, pack and ship smaller items, such as books electronics and consumer goods to customers. Amazon stated that, on an average, it pays 30% more than traditional retail jobs, in addition to health care and other full-time benefits.

Fulfillment centers are giant warehouses that help online retailers to store and ship products and handle returns quickly. These are important for providing the level of customer service that customers have come to expect of Amazon.

Over the past few years, Amazon has invested heavily to set up fulfillment centers across the country to reduce shipping costs and speed up delivery to its customers. To further automate its order fulfillment, Amazon agreed to buy warehouse-robot maker Kiva Systems Inc. in 2012 for $775 million. This was the company's biggest acquisition since the buyout of shoe retailer Zappos.com in 2009.

The growing demand for online shopping and the ever-increasing needs of Internet users has made it imperative to expand fulfillment centers. Prompt and accurate delivery of products is very important for the success of online retail companies.

Small retailers that are unable to provide relatively cost-efficient shipping are also been signing up for Amazon's fulfillment services. These services include storage in Amazon's warehouses and same/next day shipping. These items are also eligible for Amazon Prime free two-day shipping.

Third parties also use Amazon's warehouses and shipping services. All these help the onlinne retailer to increase revenue base and drive expansion.

In our view, Amazon must maintain its U.S. market share while expanding globally to retain its leadership. For this, Amazon needs to invest more in fulfillment as well as technology and content, especially in international markets, where growth rates are likely to be higher and its own facilities fewer.

Though the increased expenses could hurt the company's bottom line in the near term, we believe these investments are necessary to maintain its dominance in this highly competitive market.

At the moment, however, most of Amazon's competition (whether direct or indirect) continues to come from eBay EBAY and Google GOOG.

Currently, Amazon has a Zacks Rank #4 (Sell). Another stock that has been performing well and is worth considering include Harman International Industries HAR, carrying a Zacks Rank #1 (Strong Buy).