Ask a number of analysts what is the secret to Amazon’s retail (if not overall) success, and 9 out of 10 times the answer will be its meticulous, seamless, and incredibly efficient distribution and logistics system. Or, as Credit Suisse puts it, Amazon (AMZN) has stumbled on (really created) a new distribution model: a “pull” (or demand) model in which the Distribution Center is at the center of the shopping/retail experience, vastly different from the old “push” model, which centered around the retail store.
It’s also what Credit Suisse calls the “Amazon Effect”, and is the biggest (not so) secret behind the company’s retail success. Here is how Credit Suisse describes it:
Amazon has helped fuel the demand chain by offering best-in-class fulfillment capabilities and guaranteeing quick response delivery of packages. Amazon commits to providing free 2-day and deeply discounted 1-day shipping to Prime members (~50M-plus).
In this quick response world, inventory availability within a close enough proximity to the customer is key. Amazon has worked to build out its distribution center network with 230 active fulfillment centers (ex. pantry/fresh food DCs) in the United States.
In our opinion, Amazon’s network enables the company to fulfill in the new “pull” distribution model. This is in vast contrast to companies in our coverage which follow the traditional “push” model and only have a few key distribution centers located around the country.
This is also known as the Amazon moat, or why Jeff Bezos’ company, well on its way to becoming a monopoly across many industries, remains insurmountable. Conveniently, it can also be quantified by the number of fulfillment, or distribution centers across the country in comparison to the rest of the retail sector. As the chart below shows, as of this moment, with 230 DCs, Amazon has 40x more logistics centers across the US than the average number of distribution centers across the Credit Suisse coverage universe, and roughly twice as much as the rest of the entire retail sector combined.