Amazon’s Strategy in Investing in an Alternate Energy Company Amazon investing in Plug Power seems to be aimed at improving the efficiency of the retail giant’s fulfillment centers.
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Part of investing and stock trading is watching out for crucial mergers, acquisitions and investment made by major companies. But it is always striking when big brands invest in companies that are not in their immediate field of business. As you’ve probably heard, Amazon ($AMZN) has made a significant investment in Plug Power ($PLUG), the alternative power company. The latter has been struggling but the news of the deal has managed to raise Amazon’s stock by over 70%. More about the Plug Power Investment With this deal Plug Power can offer Amazon warrants for buying nearly 55.3 million shares that analysts feel could be worth $600 million, a quarter of the outstanding shares of the company. Amazon has also undertaken to buy up to $70 million worth fuel cell products from Plug Power to be used in Amazon’s distribution centers and warehouses. So why is Amazon associating with a company like Plug Power that specializes in alternative energy? Infrastructural Help to Improve Efficiency One of the major areas where Plug Power can help is in providing the infrastructure for Amazon’s massive fulfillment centers. Amazon has a large network of distribution centers and warehouses. Its fulfillment centers enable Amazon Prime members to get guaranteed two-day shipping. This was conceived as a method to keep consumers from brick-and-mortar stores such as Target ($TGT) and Walmart ($WMT). It was also intended to drive more orders. These massive fulfillment centers have custom built robots working in them carrying out picking, sorting and packing of products. The use of robots has enabled Amazon to reduce its operating expenses by around 20%. For incorporating robots into its fulfillment center workforce, Amazon spent $775 million back in 2012 for acquiring the robotics manufacturer Kiva. Improving Performance in the Fulfillment Centers Robots join Amazon’s human workforce to improve efficiency, and Plug Power’s technology may be used in the forklifts that are used for stocking and moving goods. Forklifts are indispensable and Plug Power could develop efficient and highly productive fuelcell forklifts for enhancing productivity and reducing downtime at the fulfillment centers. The forklifts currently operating in distribution centers are electric ones, which means that battery recharging stations significantly take up space in the warehouse since the forklift batteries need to be recharged. But by switching to hydrogen fuel cell-powered forklifts, that space can be used for inventory. It saves precious floor space. Fuel cell forklifts can also operate faster since electric batteries in conventional forklifts experience voltage drops as they get discharged. This slows the forklifts eventually, hampering their efficiency. Fuel cell forklifts can maintain their efficiency to ensure greater inventory is moved around. They can also be refueled by the drivers themselves unlike electric forklifts that require separate staff just to supervise the battery swapping and recharging. It saves on labor. So it seems that Amazon’s strategy is focused on making its distribution centers more efficient. That could play a big role in winning more customers and drawing them from the physical retail brands and other ecommerce retailers too.
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