Amazon: Retailer, or Parcel Provider?

Amazon.com started in the 1990s as an online retailer catering to consumer needs for music CDs and books. In those days, sales of books and music CDs represented about 80 percent of total revenue for the company. Since then, Amazon has skillfully transformed its business model from a simple online retailer to a far more complex distributor for hundreds of online retailers.

Their status as a retailer, of course, is now unassailable. Amazon is at the absolute leading edge of the online sales revolution that is transforming the retail industry and the transport and logistics operations that serve the industry.

Forrester Research expects online sales to reach nearly $280 billion by 2015, a 68 percent increase over 2010. The comScore research group estimates online sales in November and December increased 15 percent year-over-year to $35.3 billion. For carriers, there is an added bonus: Online sales invariably trigger returns, and UPS said it expected to carry about 550,000 return shipments on the first business day of the new year.

Amazon holds a special place in this increasingly virtual retail universe. Although the company ranked only No. 19 on last year’s list of top retailers compiled by the National Retail Federation’s Stores magazine, the company that counted nearly $33 billion in global sales in 2010 also expanded its revenue that year by more than 46 percent while most retailers were treading water at best. Amazon’s only rival in sales growth was Apple Stores and its iTunes business, which grew 32.3 percent.

While Apple is selling music downloads, however, Amazon is selling mostly in the world of physical goods, and this is where the company is having a dramatic impact on the distribution business.

Amazon has 34 distribution centers in the U.S., with each ranging in size from 600,000 square feet to 1.3 million square feet, and the company has another 24 facilities in other parts of the world. As for the most recent few months, we estimate Amazon is shipping more than 2 million packages per day — more than DHL was handling at the time of its exit from U.S. domestic shipping in 2008 — and that increases to more than 3 million per day in peak holiday season.

With such a high parcel volume, Amazon, if it was considered a light-asset parcel carrier, would rank as the fourth-largest after UPS, FedEx and the U.S. Postal Service (or third if the USPS is excluded), with annual revenue from parcel distribution services of more than $4 billion.