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After Record Profits, Why’s Amazon Looking to Cut Costs?

Though Amazon has posted a profit for 11 consecutive quarters—including a record $1.9 billion windfall in Q4 2017—the e-commerce power player is searching for ways to cut costs, even as it reportedly considers splashing out on Toys “R” Us locations, and as Spanish workers strike over wages.

According to a Bloomberg report, Amazon is making considerable changes to its add-on program, which specifies that certain low-cost items, mostly in the personal care category, too expensive to ship on their own must be purchased along with a minimum basket order of $25. Amazon reportedly is expanding the specifications so that the majority of sub-$7 products in the health and beauty now qualify for add-on status, even for lucrative Prime members accustomed to buying just about whatever they want, whenever they want with free two-day shipping thrown in.

Amazon moreover is passing on expenses to suppliers, upping fees for inventory storage and transportation. The company seems to be taking a page out of Walmart’s tried-and-true playbook, the Bloomberg article said: slashing costs at the expense of its vendor partners, especially as Walmart and Amazon are neck-on-neck on pricing parity. Bloomberg cited data from e-commerce analytics firm Profitero, which found that among 20,000 products carried by both retailers, Walmart’s average just 1.8% higher.

Even as it cuts costs, Amazon is coming under fire in Spain as 98 percent of the 1,100 workers and 900 temporary staff at its largest distribution center (DC) there went on a two-day strike over wage demands and overtime pay. Spanish newspaper The Local cited the CCOO union, which represents the DC employees, as stating that the e-commerce company wants to increase wages to below the inflation rate while trimming overnight work and overtime pay. Workers at the center reportedly haven’t received a raise since 2016. In a statement cited by The Local, Amazon countered the pay-raise claims, stating that its wages are above the standard for similar logistics jobs elsewhere in the country.

Meanwhile, Amazon reportedly sees the demise of Toys “R” Us as a potential opportunity to expand its brick-and-mortar presence, according to multiple reports that indicates the company could cherrypick the best locations to open showrooms for its Alexa-powered devices or launch even more fulfillment centers as the same-day delivery war heats up. Increasing its store fleet would make sense if Amazon continues pushing into apparel, a product that customers still appreciate touching and trying on in real life prior to purchasing.

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“Stores serve a valuable purpose,” Paula Rosenblum, RSR managing partner, said. “So whether it’s the Toys ‘R’ Us stores, dead Sears stores or something else, Amazon will have more stores that will essentially become omnichannel hubs—with a tailored assortment that allows shoppers to buy and take home things right there, as well as pick up or return things bought online.”

What’s more, though there’s no word on when Amazon drones will take over our skies en masse, the company is working diligently on patenting each and every possible advancement that could make drone deliveries a safe reality. According to reports on its latest patent approval, Amazon is exploring ways to “teach” drones to respond to gestures and vocal feedback—read: flailing and beseeching—from humans. In the event that a drone may be attempting to deliver a package to the wrong destination or to an unsafe area, Amazon’s patent indicates that it wants drones to leverage their video capabilities to observe and respond to people on the ground, though the feedback response could be coming from the drone operator rather than the drone itself. Amazon already has patented a number of drone-related innovations, including airbags to aid in dropping off packages from as high as 25 feet; a hive-like skyscraper structure that could serve as a drone dock in densely populated urban areas; and a method of “fragmenting” a drone that was already falling out of the sky to lessen the damage on the ground (better to have that drone propeller land in the oak tree than on the neighbor’s dog, right?).