Amazon builds warehouses worth $14 billion to speed up the process

Amazon.com Inc. is starting a warehouse building spree in response to the raising demand of getting products to customers more quickly amid rising competition from EBay Inc. and Wal-Mart Stores Inc.

Amazon’s center in Chattanooga, Tennessee, opened in 2011 after about 10 months. More space and new technology are the advantages of the new building, which is part of Amazon’s almost $14 billion spending spree on 50 new facilities since 2010. That’s more than the company spent on warehouses in its lifetime and brought the total to 89 at the end of 2012. Amazon has announced five more in the U.S. this year.

“We’ve standardized them in such a way that opening them and replicating them happens very fast,” Dave Clark, vice president of worldwide operations and customer service, said in an interview for Bloomberg at the Chattanooga building.

A fierce competition between the online retailers spurs a rally of who would be able to deliver to customers door within hours. E-Bay has offered same-day delivery service in some cities. Furthermore, Wal-Mart is increasingly moving its $482 billion in estimated fiscal 2014 sales online. The retailer has more than 4,700 stores across the U.S., most just a few miles from consumers’ homes.

The vast investing in warehouses is diminishing Amazon’s margins. The company’s trailing 12-month operating margin of 0.95% sends it in the bottom 3% of peers in the Standard & Poor’s 500 Index, even though it ranks among the top 10% of that group by sales, according to data compiled by Bloomberg.

If Amazon can place warehouse centers nearer to the top 20 U.S. metropolitan areas, the company could reach 50% of the U.S. population with same-day delivery, compared with 15% now, according to supply chain consultants MWPVL International. That would require only opening another 12 warehouses beyond those built and announced, the firm said.

The company’s centers are set to change in other ways. The company last year acquired Kiva Systems Inc., which owns robots that slide under products and move them around warehouses, something it hasnt significantly built upon.

It’s also adding refrigeration and a truck fleet to warehouses in Seattle and Los Angeles as it expands its grocery delivery service. That means the 2014 warehouse model might not look anything like this year’s.

“Every time we open a building, we take the lessons learned, we redo the design and open the next year’s,” Clark said for Bloomberg. “It’s sort of like cars. We’ll very quickly incorporate what we learned this fall from the 2013 buildings and launch the 2014 model.”

Amazon shares are up 0.4% so far today while advancing more than 14.5% year to date.