Zacks Equity Research

About the Author Zacks Equity Research brings the decades of study and stock picking expertise of Zacks Investment Research to individual investors. Now, you don't need to be an investment bank or brokerage firm to get the professional power of Zacks' research. It's all available on Learn more about Zacks' history and company on our website., Inc. (AMZN) to Build Fulfillment Center in Shakopee, Inc. (NASDAQ:AMZN) recently confirmed that it will build a fulfillment center in Shakopee, MN, that will focus more on smaller items, such as books, electronics and consumer goods.

According to Amazon, the 1 million-square-foot facility will create 1,000 full-time jobs. The company stated that it pays competitive wages, including health care and other full-time benefits. In addition, the online retail giant offers programs, like Career Choice, to help employees pursue courses related to fields that are in demand.

Last September, the online retail giant had announced that it will collect sales tax from Minnesota customers, effective Oct 1, 2014. This announcement led to speculations that the company might be opening a warehouse, data center or some other operation in the state or acquiring an existing firm.

Fulfillment centers are giant warehouses that help online retailers 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 cut shipping costs and speed up delivery. The need to expand fulfillment centers has been fuelled by the growing demand for online shopping among Internet users. 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 also avail of Amazon’s fulfillment services. Third parties also use Amazon’s warehouses and shipping services 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, the company needs to invest consistently in fulfillment centers as well as technology and content, especially in international markets with less penetration and higher growth rates.

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

Currently, Amazon has a Zacks Rank #3 (Hold).

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