Journey to the source of Amazon

It's a jungle out there in the world of online retailing, but one company at least seems finally to be bucking the trend. Thomas Sutcliffe goes behind the scenes at a book-selling phenomenon
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The Independent Online

It would be a cruel thing to do, but I'd quite like to take a professional librarian round Amazon's distribution centre – the Bedfordshire warehouse where Britain's third biggest bookseller turns virtual internet promise into consumer fulfilment. It would be one of those schoolboy exercises in reckless combination – the blending of two incompatible substances in the hope of a spectacular reaction. And it would draw at least part of its malicious appeal from the fact that the explosion would be deferred. From a distance, the picking towers – the section where Amazon stores its inventory – offer a geometrical promise of comprehensible order: four floors of metal shelving spanning the warehouse and receding into the distance with perspectival regularity. With its fluorescent lighting and shelf markings, it looks like a university library.

It's only when you get close that you see there is no order at all – or none apparent to any human mind. Three copies of Jonathan Franzen's The Corrections (currently 30 on Amazon's sales ranking) sit alongside a larger stack of Tired of Being Tired (a self-help health book which is currently 1,912). On the other side of the aisle the eye leaps from I Told You So, You Blockhead, a book of "Peanuts" cartoons, to The Hobbit to a Dean Koontz thriller. Compact discs are randomly mixed in with books and computer software. Even if you aren't psychologically committed to classification, your mind is likely to make a panicky scrabble briefly for some explanatory foothold – but you will be wasting your time. It all makes sense to the computer, but by any traditional understanding this is a library from hell – a Borgesian exercise in structured chaos.

Which is fitting really, since for the last five years has put counter-intuition at the heart of its business plan. Jeff Bezos, the firm's founder, may be the only CEO in history to have actually apologised to his shareholders for making a profit – a blasphemous oversight in just one division some years back which ran counter to the almost religious dedication with which income was then converted into capital expenditure. Bezos's vision was simple and it had a mantra, "Get Big Fast", a gold-rush determination to stake out as much ground as possible on the wild frontier of the internet – a new territory that itself was expanding beyond any conventional business experience. "Things don't grow this fast outside of petri dishes," said Bezos in the early days, and he was convinced that anyone who could keep pace with that bacterial explosion would eventually win big.

His gamble was not a small one. Since it was founded in 1995, the company has sold books and other items to more than 35 million customers, but it has lost $2.8bn (£1.9bn). But last week, for the first time ever, announced a modest quarterly profit for the company as a whole. Accountants can make even the most gifted conjurors look ham-fisted but – barring a bit of up-the-sleeve stuff about currency fluctuations and stock options – this was the real thing. And this time, Bezos wasn't saying sorry. Amazon may not be out of the woods yet, but at last its long-term investors can see something other than trees.

The engine rooms that, Bezos hopes, will end up pumping even more cash back into the company than has flowed out over the last few years are its distribution centres. And one of the first things you notice about the Marston Gate warehouse – the centre from which all orders are dispatched – is how much empty space there is left. The next branch of Amazon isn't going to be out there in the world, requiring planning permission and builder's fees. It's already sitting on your desk, and you obligingly paid to put it there. The moment you decide to use it they have to be able to respond. Some of this empty space even has a geographical designation. "This is Mass Land," says the UK managing director, Robin Terrell, as we cross a broad expanse of scuffed grey concrete which divides the picking towers from the sorting and dispatch lines. On the floor the yellowed traces of gaffer tape mark out the locations for the pallets of Harry Potter books and Bridget Jones videos that sat there last December, fuelling a pre-Christmas boom for the UK company. "Over Christmas we had 17 straight days on which we shipped over 100,000 units," Terrell explains. On their best day, 13 December, they dispatched 150,000 items from here. Take a good-sized bookshop. Imagine that you have to sell every single book in it before closing time, and then add to that the task of wrapping them all for postal delivery, and you have some idea of what that figure means in practice. And even then, says Terrell, they weren't running close to capacity.

Right now Mass Land is a desert; just a space from which you can appreciate the scale of the picking towers – a high-rise storage system constantly replenished by those on "putaway", who take fresh deliveries and restock the shelves. Somewhere in there are four bits of my property. Just before I set off to drive up the M1, I obey the cheeky admonition of the Amazon screen ("Your shopping basket lives to serve. Give it a purpose – fill it up!") and put in an order. By the time I arrive, it has already entered the steady process that will have it out of the door before 24 hours have passed. If I were to check its progress on the website, as all customers can, I would see it described as "Dispatching soon", but the in-house software gives a more telling detail. Right now, it declares, it is "Paid, not picked" – a clue to one source of Amazon's edge over its high-street rivals.

Strictly speaking, almost everything you can see in this vast inventory of software, CDs, electrical goods and books belongs to either the customer or the manufacturer. On a rough average Amazon will pay for an item 15-20 days after it has itself been paid, earning interest in the meantime. What's more, it can turn its stock over with an efficiency that would make a conventional bookseller weep – adjusting purchasing orders with its own in-house predictive software, so that stock matches public desire with figure-hugging tightness. If there's a spike in demand, they can react quickly – with their major suppliers, an order placed at nine one night will usually be in the warehouse by the next morning. The fact that Royal Mail is on site, monitoring the 160 chutes that feed parcels to a specific postal code, means it can often be out again the same day.

The second thing you notice about the distribution centre is that it appears to be hopelessly understaffed. This isn't a busy time of year – though aggressive price-cutting and promotions have ironed out the usual post-Christmas slump – but even so, it looks as if a half-hearted fire-drill is under way. The shrink-wrapping machines thump steadily away ("Never knowingly under-packed" could be the corporate motto) and the orange "totes" – the plastic crates in which orders are assembled – shuffle along the overhead conveyor belts, queuing up to await sorting. But there aren't many people, except at those points where automation has to give way to the vestigial human decision still left in the system. This depopulation is another clue to Amazon's current route-plan for long-term profitability. Terrell has the statistic ready: according to a recent year-on-year comparison, they were shipping 15 per cent more goods with 4,000 fewer staff. Continuing expansion is still part of the plan, but operational bloat isn't. Last year the company discovered the hard way that name recognition and internet presence could not be easily traded for increased revenue – a decision to cut discounting in America resulted in a drop in orders, until price-cuts were reinstated. Efficiency was the only way to increase the margins.

Which raises a question about the company's future as the Sears, Roebuck of the 21st century ("Anything – with a capital A," is Bezos's answer to what the company will sell in the future). Asked once whether his customers were loyal, Bezos replied, "Absolutely, right up to the second that somebody else offers them a better service." This is responsible CEO talk – consistent with what he's called an "anal-retentive" focus on customer service. But Amazon customers are loyal – they have a relationship with the firm built on its alternative approach to the commercial imperative. UK customers will soon encounter a new button on the website, which will allow them to sell their own used copy of a title to buyers. In the US, where this has been operating for some time, such transactions now account for 15 per cent of all orders – and Amazon gets a small cut from every one.

It's a good example of their ingenuity in creating a site that locks internet surfers in, and it isn't an isolated one. Amazon's inclusion of reader reviews on its site is open to abuse – "Emily Brontë" once reviewed one of her own books and whinged about the fact that Jane Austen got "two mini-series and a full-length motion picture in one year". But it also reinforces the sense of a different way of doing business. Look up Get Big Fast, the standard history of Amazon's creation, and you'll find a reader complaining that its positive tone "grates". But he concedes that the last few pages of the book are more critical and "best of all, it questions whether Amazon's business model will work (after all, Amazon has yet to make a sustained profit)".

It looks as if that sceptic – just one of thousands – may ultimately be proved wrong. But if so, Amazon somehow has to manage to grow beyond its kid-brother charm – all upstart energy and eager zeal – without turning into just another corporate Big Brother.