Expanding fulfillment network comes as e-book sales outpace paperbacks

Amazon.com will add an unspecified number of distribution centers this year as the online retailing giant tries to keep up with growing demand for its expanding lineup of products.

Amazon added 13 fulfillment centers last year as its global revenue scaled up sharply, growing 36 percent to $12.95 billion in the fourth quarter. That gave Amazon 52 distribution centers.

But adding those distribution centers also helped push Amazon's costs up 38 percent in the fourth quarter, cutting into the company's margins. Amazon Chief Financial Officer Tom Szkutak said it will take time for the profit margins to catch up to the capital investment.

"Even though we're not fully utilized in some of these new assets that we deployed in 2010, or our productivity is not optimum, (we) will work to utilize those assets," Szkutak said in a conference call with investment analysts. "As we continue to grow, we'll get better and better productivity as we go, just like we have in our other fulfillment centers around the world."

Goldman Sachs in an investment report this month said Amazon plans to add 7 million square feet of distribution space this year, which would increase its capacity some 40 percent.

Amazon is adding the distribution centers even though digital sales appear to be far outpacing sales of physical books. The company said this week that sales for its Kindle electronic tablet outpaced sales of paperbacks on its Web site.

But that does not appear to be slowing down Amazon's fulfillment network.

The company last month said it planned to build two distribution centers, each more than 1 million square feet, in southeast Tennessee, at a cost of $139 million.

Source: JOC