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Amazon Same-Day Delivery? Stores Not The Target
The cutoff times in the other cities range from 8:30 AM in the Big Apple to 10:00 AM in the City of Brotherly Love to 11:00 AM in Baltimore and Boston, with the absolute latest being noon and that’s only for Amazon’s mothership neighbors in Seattle.
The big question, though, is where is Amazon planning to go with this? Amazon’s Prime shoppers, of course, are a trivial percentage of its customer base. Will Amazon expand this offering nationally, for all customers?
Let’s look at the restrictions and what is likely to happen.
Amazon has from the very beginning understood that its sales-tax haven would be a limited-time advantage. That never meant it would hold back on any legal devices the company could deploy to stretch it out as long as possible, including our personal favorite when it posted the most embarrassing movie and book purchases it could find when fighting North Carolina tax-collection efforts in 2010.
Now that it’s preparing to charge sales tax in just about every state, Amazon is free to aggressively open distribution centers (DCs) anywhere it wants. Those DCs will not only add new areas for same-day delivery but they’ll also enable Amazon to radically expand which products are eligible.
“If we’re building a million square feet in LA, there’s a lot of product in there,” said one Amazon-ite. “In Phoenix, it’s 4 million square feet of fulfillment space plus.”
Like everything else in retail, pricing decisions can truly dictate purchases. If two-day shipments are low cost or free—and don’t forget that more DCs will likely reduce three-day and two-day shipments in many areas to two-day and next-day, at no additional customer cost—how many customers will cough up extra money for next day? This really begs the question of how many will pay an extra $9. Given that Amazon Prime fees subsidize those costs, it might be a lot more, thereby reducing the incentive.
But one Amazon source suggested a more likely scenario would be to offer same-day delivery for free, with possible restrictions on order size. Suddenly, that takes on much more power. But not against physical stores—against other E-Commerce sites.
Amazon is nothing if not dependent on some very sophisticated homegrown apps. Done intelligently, costs on local same-day shipments could be tiny, potentially lower than the cost of mailing orders in bulk. If the system notes that it is preparing to ship 56 packages to the same huge apartment building in Manhattan or 197 boxes to the same office building in Los Angeles, couldn’t a local truck do this for a lot less?
It’s lost on no one that once tax issues are gone, the biggest price differentiator between E-Commerce and physical stores is delivery fees. Remove them, and Amazon has made up for the loss of the tax advantage many times over.
By the way, Amazon is not only thinking about all of this, but it’s amused by where such a strategy could go. The company pointed us to a truly funny video that has Amazon going beyond same-day delivery, into yesterday delivery. Amazon neither made the video nor denied that it’s exploring this time-travel approach. The company was kidding. I think.
-Marc
July 19th, 2012 at 4:09 am
I am pretty sure that is a new focus for Amazon, and I would think the implications for local stores may be real. You would not get the touch/feel or the absolute instant gratification, but for the right price reduction – it would surely be pretty attractive to many people. A real stretch thought might be Amazon opening tiny catalog stores where people can browse merchandise on nice Amazon computers and displays, pay for their merchandise via PayPal Here and then expect their product in a few hours. Real estate costs would be fairly low, but they could drive foot traffic in major malls or urban shopping districts into their stores.
July 27th, 2012 at 1:29 am
If AMZN allocates inventory across its distribution network using the 80/20 rule – that is 80 of the stuff that sells is 20 of your owned SKUs, this will absolutely hurt physical retail, especially if they focus allocation on dry goods and diapers (you know, stuff that costs a lot to ship cross country?)
The beauty of this shift to same day fulfillment is that AMZN doesn’t have to go all-in for its core businesses (books and media) because those have shifted to digital.
Yes, this will squeeze other etailers, but the true target is big box retail. All of them.