Is Amazon's Traffic Problem In Robbinsville Indicative Of Increased Sales?

  • Amazon's warehouse in Robbinsville has created a major traffic problem in the small town, leading to an increase in traffic gridlocks and accidents.
  • Amazon has seen a 400% and ~119% increase, respectively, in the number of morning and evening trips it was initially awarded.
  • Is Amazon's traffic problem indicative of a strong holiday quarter and what are its implications for Amazon stock?

Robbinsville is a small town in New Jersey, home to Amazon's (NASDAQ:AMZN) sprawling 1.2 million square foot warehouse. The Robbinsville Warehouse, during this holiday season, has added 2,000 more seasonal jobs to its already 4,000 employees. This increased number of employees plus the increased traffic at the facility has choked traffic, increased accidents near the facility and led to anger from the general public towards Amazon's traffic havoc.

Also read: 'Amazon Stock Looks Set For A Strong 2016'

Two weeks ago, this increased gridlock on nearby roads provoked Dave Fried, the Mayor of Robbinsville, to threaten to sue Amazon over traffic saying that the infrastructure was not built to handle that much car volume and that Amazon should change or stagger shifts.

Brief Background

In 2012, Amazon was approved for roughly 1,000 trips in the morning and 2,282 trips during evening peak hours but it is now averaging 5,000 trips each shift. That is an increase of 400% in the morning trips and ~119% more trips in the evening.

This has led to more traffic than usual and it has also increased the number of accidents. For example, in the last six weeks alone, there have been more than 25 accidents near the Amazon entrance compared to one in the few months prior.

This increased traffic and uproar from residents coupled with the failure of Amazon's representatives to attend a meeting they had promised to attend, caused the Mayor of Robbinsville to threaten to take legal action against the retail giant.

"If they don't agree to change the shift schedule and come up with a way to manage the situation, we're going to have no choice, but to shut the building down," Mayor David Fried said.

Negative Implications of Amazon's Robbinsville Problem

The situation in Robbinsville is a good example of what to expect from Amazon in the future. Piper Jaffray analysts estimate that the locations of Amazon's fulfillment centers bring it within 20 miles of 31% of the population, but within 20 miles of 50-65% of its core same-day addressable market.

Amazon has and is still establishing fulfillment centers around the US. The Robbinsville case shows us that we should expect more costs unrelated to Amazon's business and that we might be able to ascertain if Amazon will have a good year just based on the traffic surrounding these warehouses.

The added cost is wearing on the retail giant. Amazon has faced extra transport and human capital costs in Robbinsville.

  • A surge in non-business costs - transport expenses: Since opening the warehouse in June, Amazon has invested more than $300,000 to support the ZLine shuttle bus  that brings employees from Trenton to the fulfillment center. In addition to that, Amazon added another free shuttle service that buses employees from the Trenton Thunder parking lot.
  • A rise in SG&A expenses: Amazon also hired five off-duty police officers to help improve traffic flow around the warehouse park during each shift change.
  • Political headline risk: Although Amazon creates jobs, the uproar from increased accidents and forcing residents to stay longer in traffic than desirable, will always create legal conflicts and clashes with politicians for the retail giant.
  • The seasonality problem: As Amazon gains more market share and its orders increase, traffic issues with residents -especially during holiday seasons -will always be a recurring political headline risk.

Positive Implications of Amazon's Robbinsville Problem

  • Better than expected sales this holiday season: On a positive note, this might imply a better than expected quarter.

"We are proud of creating more than 4,000 regular, full-time jobs here in the Robbinsville community," Amazon spokesperson Aaron Toso said. "Given the seasonal peaks of our business we have added an additional couple thousand more seasonal employees and we realize that this has created localized traffic issues." He said.

Assuming it is true that this traffic was unexpected, it means that the company has seen demand grow faster than its own estimates. Such a surge in demand during the busiest month in the retail space might be an indicator of better than expected sales in Q4 2015.

Lastly, this might be a sign of increased market share. The facility is showing increased activities in a time when retail sales are shrinking. For example, last month U.S. stocks declined after weaker-than-expected retail sales data added to growth concerns. This drop was accelerated because some retail and apparel companies led by the likes of Nordstrom (NYSE:JWN) missed estimates for the quarter. Amazon's physical locations and shorter shipping times allows the company to effectively compete with brick-and-mortar businesses. Therefore, if the increased trips in Robbinsville is reflective of better-than-expected sales, this might be a good holiday season for Amazon. A strong quarterly earnings report could therefore turn out be a good short term driver for Amazon stock.

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