Amazon CEO explains how company carries out same-day delivery

Amazon CEO Andy Jassy told CNBC’s Jim Cramer how the company has been able to increasingly carry out same-day orders.

Amazon changed its U.S. fulfillment network from a “flat regional network” to eight regional hubs, reconfiguring its placement algorithms to get items closer to customers, he said. He added that the company also uses “sub same-day facilities” to ship items faster, saying many fulfillment centers have “about a million” SKUs — or stock keeping units, product identifiers used by retailers — ready to be shipped out same-day.

“We were not only able to take the transportation distances down, which lowers your transportation costs and speeds up delivery to customers, but we also took our cost to serve down,” Jassy said. “We moved from two-day to a lot of the shipments being one day, and then increasingly, we’re being able to ship items to people in the same day.”

Jassy said 60% of shipments in Amazon’s top 60 metropolitan areas have been same-day or one-day deliveries in the first half of the year. Amazon has found that delivery speed meaningfully changes customers’ conversion rates and the rate at which they’re willing to buy, he added.

“What you find downstream for customers is when you’re able to get them delivery much faster, they consider you for much more of their purchases,” Jassy said. “Customers love getting items quickly.”

Amazon shares fell modestly Wednesday in a broader stock market decline. However, they remain near 52-week highs and have gained more than 70% year to date. In a note to clients this week, Bernstein named Amazon a top pick for 2024. The analysts’ price target of $175 per share represents more than 20% upside from current prices. The CNBC Investing Club likes Amazon going forward as well. It’s one of the Club’s portfolio holdings.

Sign up now for the CNBC Investing Club to follow Jim Cramer’s every move in the market.

Disclaimer The CNBC Investing Club Charitable Trust holds shares of Amazon.