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TheStreet Open House

Why Amazon Would Want a Stake in a Yodel

NEW YORK (TheStreet) - Amazon (AMZN) reportedly has the option to acquire a 4.2% stake in Yodel, the U.K.'s second largest delivery service behind the Royal Mail, according to The Guardian. This is the latest example of Amazon furthering itself into the the shipping and logistics industry, as it looks to cut its largest expense.

Amazon's net shipping costs were $3.54 billion in fiscal 2013, up 24% from the year prior, according to its annual 10-K filing. "We expect our net cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, our product mix shifts to the electronics and other general merchandise category, we reduce shipping rates, we use more expensive shipping methods, and we offer additional services," Amazon said in the filing.

As more customers use Amazon, specifically by signing up for Amazon Prime, its two-day shipping service, the online retailer is looking for a way to contain -- and control -- shipping costs while continuing to provide the convenience factor for those who purchase everything from DVDs to diapers through its Web site.

"We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing placement of fulfillment centers, negotiating better terms with our suppliers, and achieving better operating efficiencies," Amazon said in the 10-K. "We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers."

With millions of consumers now using Prime (Amazon has not disclosed the actual number of users), increasing fuel and shipping costs are the primary reasons why Amazon raised its price on Prime by $20 to $99 a year, its first price raise since the service was launched nine years ago. Amazon officially announced the price change on March 13.

While Amazon packages reach customers through a variety of methods, including UPS (UPS) and FedEx (FDX), the company reached an agreement in November with the U.S. Postal Service to deliver packages in the New York and Los Angeles metropolitan areas on Sundays. Amazon said then that the service would be rolled out to other U.S. cities in 2014.

Now Amazon may be looking across the Atlantic for its next strategic move in the world of parcel delivery. According to Monday's article by The Guardian, Amazon has reportedly struck a deal with the Barclay brothers, owners of the Ritz hotel and Telegraph newspaper, to have the option to acquire a stake in the U.K. courier company, Yodel.

The Guardian reports that Amazon has been given the option to purchase a 4.2% stake in Yodel for £8.7 million or $14.3 million U.S. dollars (as of today). The option to acquire the stake remains open to Amazon until 2022, the article says. The deal would value Yodel at £207 million or $341.6 million.

Approximately 10% of Amazon's $75 billion in global revenues are "thought to be" coming from sales to customers in the U.K., the article says.

Amazon and Yodel declined to comment to The Guardian. The companies did not respond to emailed requests by TheStreet by press time.

Interestingly enough, The Guardian notes that Yodel, the country's second largest delivery service behind the Royal Mail, is also its "worst parcel delivery service for the second year running," as cited by a January survey by MoneySavingExpert.com.

(Yodel had refuted the poll's validity to The Guardian.)

Still the possible deal is just another example of how Amazon is looking to expand its heft into the shipping and logistics world -- and beyond UPS and FedEx behemoths -- to get customers their packages in a timely fashion, while containing costs.

--Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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