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Amazon’s Five-Mile Threat

Written by Frank Hayes
May 1st, 2013

Amazon (NASDAQ:AMZN) will open eight new U.S. distribution centers between now and the holiday selling season, bringing the total to 54—with almost as many DCs outside the U.S., according to the CEO of e-commerce service provider ChannelAdvisor. The result of the ferocious building spree is that Amazon will then have a DC within five miles of most major U.S. cities. Put another—and more frightening—way: That means Amazon will very likely have a DC closer to your customers than many of your stores.

That dramatically cuts Amazon’s delivery costs, and it’s the most obvious explanation of why Amazon flipped its position on online sales taxes in 2011, from the leading opponent to a major supporter: All those warehouses give Amazon a big advantage over its e-commerce rivals, and it doesn’t want those rivals to have a sales-tax advantage in return.

The e-tail giant will also increase its overseas DC count from 43 to 48, and the new warehouses are five times the size of Amazon’s original DCs, ChannelAdvisor’s Scott Wingo told an audience at his company’s customer conference on Monday (April 29). That continues a steady stream of highly automated DCs that Amazon has invested in over the past several years.

This also raises a bigger concern for bricks-and-mortar chains, given that Amazon will soon have bricks on the ground almost as close to customers as retailers themselves. That doesn’t just mean Amazon can do cheap delivery. It means Amazon has almost complete control of when it will flip the switch for same-day delivery as a standard option. It’s no longer a hypothetical possibility—it’s a practical reality.

What does that mean? Walmart (NYSE:WMT) and Nordstrom (NYSE:JWN), among others, have been running very limited tests of same-day delivery. But Amazon has been offering a same-day option for years in ten metro areas (Baltimore, Boston, Chicago, Indianapolis, Las Vegas, New York, Philadelphia, Phoenix, Seattle and Washington, D.C.), and that hasn’t destroyed conventional retailers in those cities. But it does raise the stakes. Chains are no longer safe being omnichannel laggards. At this point, if you don’t have an enterprise-wide view of your inventory and the ability to make a customer happy from any store that has the merchandise the customer wants, you’re at risk.

And until some other retailer steps up to force issues like same-day delivery, Amazon really is calling the shots.


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One Comment | Read Amazon’s Five-Mile Threat

  1. Ann Grackin Says:

    Well said conclusions. Retailers can compete. They just need to know how. We recently did a research project on home delivery: Winning at Home Delivery. Great example is John Lewis in the UK, who really got serious about how to home delivery–from the mundane to full services. But retailers need not only the merged channel customer views, inventory visibility, and most importantly the customer experience–all the touch points from store, web to great delivery. In short, give the consumer a compelling reason to shop with you.

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