How Amazon’s ambitious new push for same-day delivery will destroy local retail(slate.com)
slate.com
How Amazon’s ambitious new push for same-day delivery will destroy local retail
http://www.slate.com/articles/business/small_business/2012/07/amazon_same_day_delivery_how_the_e_commerce_giant_will_destroy_local_retail_.html
309 comments
Amazon has been doing this in parts of Germany since 2009. The results haven't been nearly as dramatic as the article predicts. As others have indicated, the limiting factor isn't so much speed of delivery as the inclination to physically inspect items before buying them. That said, Zappos, now a part of Amazon, has succeeded in doing that in one of the markets that tends the most towards such. Even so, there are still a lot of places to buy shoes.
> Amazon has long enjoyed an unbeatable price advantage over its physical rivals. When I buy a $1,000 laptop from Wal-Mart, the company is required to collect local sales tax from me, so I pay almost $1,100 at checkout.
This is such an over blown argument. Sure, Amazon is ~7% (where I live) cheaper than traditional stores due to sales tax. But that $1000 Wal-Mart laptop has a $900 sticker price on Amazon, and most non electronic items are 20-40% cheaper than in stores.
If laws change and I have to start paying sales tax on Amazon, it won't change a thing about my buying habits.
Edit: They also have an inventory many times larger than any brick and mortar store. Whenever I go shopping, I have to choose between the least crappy option Wal-Mart decides to stock. On Amazon, I get exactly the one I want.
This is such an over blown argument. Sure, Amazon is ~7% (where I live) cheaper than traditional stores due to sales tax. But that $1000 Wal-Mart laptop has a $900 sticker price on Amazon, and most non electronic items are 20-40% cheaper than in stores.
If laws change and I have to start paying sales tax on Amazon, it won't change a thing about my buying habits.
Edit: They also have an inventory many times larger than any brick and mortar store. Whenever I go shopping, I have to choose between the least crappy option Wal-Mart decides to stock. On Amazon, I get exactly the one I want.
This is already happening in China. Because of the nature of shipping companies here it's not unusual to buy a product (typically off of http://taobao.com) and get it later that day or the next day. Many of these businesses are based in Shanghai and if you live there delivery happens nearly instantly. One online shop, http://cheers-in.com/ delivers cold beer in Shanghai in 1 - 2 hours from an order. Stuff like this is absolutely fantastic and it would be amazing to see it come to the US.
Amazon failed to collect/remit ~270M in sales tax in Texas and has owed millions for years. So what did the state of Texas do about it?
They struck a deal to erase the 270M owed, as long as Amazon starts collecting sales tax starting 7/1, create 2000 jobs and invest 200M in Texas. They were likely already planning more infrastructure in Texas, but threatened to reverse course and pull out of the state entirely.
The way I see it, Amazon bluffed the state of Texas to the tune of 270 million dollars and all I might get out of it is next day delivery?
I'll take what I can get, I guess.
They struck a deal to erase the 270M owed, as long as Amazon starts collecting sales tax starting 7/1, create 2000 jobs and invest 200M in Texas. They were likely already planning more infrastructure in Texas, but threatened to reverse course and pull out of the state entirely.
The way I see it, Amazon bluffed the state of Texas to the tune of 270 million dollars and all I might get out of it is next day delivery?
I'll take what I can get, I guess.
A general policy that "online stores pay sales tax" also benefits Amazon vs. small internet retailers.
A while ago I sold a few bumper stickers online and ended up using cafepress. I could have made a better profit by printing the stickers in bulk and mailing them to people, but I'd have to spend $100+ on paperwork just for the privilege of paying sales tax just in case I sell any to New Yorkers.
If small internet businesses had to pay taxes to the 40+ states that have sales tax plus to all the other jurisdictions (cites, counties, who knows what) in the U.S. it would be almost impossible to sell stuff and comply with the the law.
For AMZN the overhead is nothing.
A while ago I sold a few bumper stickers online and ended up using cafepress. I could have made a better profit by printing the stickers in bulk and mailing them to people, but I'd have to spend $100+ on paperwork just for the privilege of paying sales tax just in case I sell any to New Yorkers.
If small internet businesses had to pay taxes to the 40+ states that have sales tax plus to all the other jurisdictions (cites, counties, who knows what) in the U.S. it would be almost impossible to sell stuff and comply with the the law.
For AMZN the overhead is nothing.
It'll destroy larger B&M stores but I doubt it'll fully outdo local specialty shops. What you'll see is a stratification between hyper specialty B&M that sell luxury items only a tiny subset of people want, but are willing to pay out the nose for, and places like Amazon filling the role of Target and Walmart, being the catch-all for everything else that most people need on a week-to-week or month-to-month basis. While you might be able to buy a certain brand of organic mustache wax on Amazon, I don't see a day coming where they'll be able to do that same-day.
I bought 2 things on Amazon this week, both with free 2 day shipping with Prime
Item 1 spent 13 hours on a UPS truck driving around my city and was delivered about 7pm in the evening 2 days after ordering.
Item 2 was delivered 14 hours after purchasing by Amazon Fresh at 9am.
For the same price of shipping, which service would you rather have?
EDIT To Add: The delivery guy for the 14 hour item works for Amazon - the whole experience was produced by Amazon without needing a third party. UPS is another company that will be in trouble if Amazon can make this scale.
Item 1 spent 13 hours on a UPS truck driving around my city and was delivered about 7pm in the evening 2 days after ordering.
Item 2 was delivered 14 hours after purchasing by Amazon Fresh at 9am.
For the same price of shipping, which service would you rather have?
EDIT To Add: The delivery guy for the 14 hour item works for Amazon - the whole experience was produced by Amazon without needing a third party. UPS is another company that will be in trouble if Amazon can make this scale.
This is the trojan horse. Once Amazon has a large presence in each major centre, the next logical step for them is use some of their massive space as a showroom (think Ikea but on a much larger scale).
[Edit: To clarify, the showroom and warehouse would be in the same complex but separated. Shoppers + heavy merchandise + fast moving robots is a recipe for disaster.]
Then they can satisfy both the "I want to see it before I buy it" crowd as well as the "I know what I want - just give me the best price" crowd.
Mark my words. Amazon has the Costco's, Walmart's and Best Buy's of the world squarely in their crosshairs.
*Of course there will of course always be specialty categories that are too niche to fit in this model, thus many specialized retailers will still exist.
[Edit: To clarify, the showroom and warehouse would be in the same complex but separated. Shoppers + heavy merchandise + fast moving robots is a recipe for disaster.]
Then they can satisfy both the "I want to see it before I buy it" crowd as well as the "I know what I want - just give me the best price" crowd.
Mark my words. Amazon has the Costco's, Walmart's and Best Buy's of the world squarely in their crosshairs.
*Of course there will of course always be specialty categories that are too niche to fit in this model, thus many specialized retailers will still exist.
More technology driven hyper-deflation on the way.
The future: high inflation in food, energy, fuel, and consumables, hyper-deflation in everything else except to the extent that it depends on or consumes the former.
The future: high inflation in food, energy, fuel, and consumables, hyper-deflation in everything else except to the extent that it depends on or consumes the former.
Isn't this just one step away from Amazon just being another brick-and-mortar? If this is the case, is not having an actual store that is accessible by customers (and coincidentally, the neccessary staff), that much of a operational advantage?
Or is this just a case of the more efficient company (Amazon) beating out less efficient companies (Best Buy, Barnes and Nobles, etc...)?
Or is this just a case of the more efficient company (Amazon) beating out less efficient companies (Best Buy, Barnes and Nobles, etc...)?
Amazon is playing chess while the brick and mortar stores are playing checkers.
"I have no idea how Amazon made any money on my order (the whole bill was less than $30) but several people on Twitter told me that they’ve experienced similarly delightful service."
Therein lies the problem. At some point there will have to be revenues to justify the company's valuation. I suppose their goal is to initially obliterate all competition in entirety and then have everyone purchase from Amazon. I'm doubtful this will work. Of late, there has been a trend towards experience stores - with manufacturers creating their own stores instead of distributing to retailers. Many luxury brands do this and even some non-luxe ones, such as Samsonite, have been getting into the game. There's some value added here, and it's something Amazon won't be able to directly compete with.
Therein lies the problem. At some point there will have to be revenues to justify the company's valuation. I suppose their goal is to initially obliterate all competition in entirety and then have everyone purchase from Amazon. I'm doubtful this will work. Of late, there has been a trend towards experience stores - with manufacturers creating their own stores instead of distributing to retailers. Many luxury brands do this and even some non-luxe ones, such as Samsonite, have been getting into the game. There's some value added here, and it's something Amazon won't be able to directly compete with.
This is crazy - I ordered 3 things from Amazon today through Prime and started wondering if/when a day would come when you'd have same day delivery from Amazon and what it would look like. I figured it would happen someday, but thought the complexities would be too much to handle for a while. Looks like they're way ahead of me. This is why I love Amazon.
The only advantage local retail stores have is immediacy. You can buy it as fast as you can drive there (and park/find it in the store/wait in line). Amazon has almost every other advantage. Ive come to find shopping local retail stores more and more frustrating. Shopping without reviews or videos, and having to flag down employees to help you locate items. It's really hard to beat online shopping with one day or two day shipping. Not impossible, but challenging. Target, Best Buy, and other generic mass retailers would be hurt the most
Because the last mile is always so expensive and subject to theft, I think we'll eventually have a centralized local pickup location for all sorts of small deliveries. We'll just stop there on the way home if something has arrived.
That will even include your postal mail if the postal service ever wakes up. There's no need to physically deliver mail every day if people could see what mail they've received remotely and can pick it up or request deliver if they can't leave home.
That will even include your postal mail if the postal service ever wakes up. There's no need to physically deliver mail every day if people could see what mail they've received remotely and can pick it up or request deliver if they can't leave home.
Looks like Amazon is finally bringing Webvan to fruition. Only took 11 years.
Remember when home videos were going to obliterate movie cinemas? Who would go out when they can watch a movie on their couch?! For a while too things dipped. Then people realized there was a social element to going to the movies that made it a compelling experience. Add to that iMax and 3D etc. Heck, who would bother going to an Apple store when you can buy everything online!
Amazon is to shopping what McDonalds is to food. We all know what happens when you have McDonalds every day.
Amazon is to shopping what McDonalds is to food. We all know what happens when you have McDonalds every day.
"I’d gotten next-day Saturday service for free. I have no idea how Amazon made any money on my order (the whole bill was less than $30) but several people on Twitter told me that they’ve experienced similarly delightful service."
I've got news for you- they didn't make any money on your order. Amazon is profitable but has razor-thin margins on the whole. They take losses on several markets, including Prime, gambling that the entire seamless, low-cost user experience will cause enough people to spend enough money to push them over the edge of profitability.
I for one have serious doubts about whether what the author describes (based to a large extent on pure speculation) would be a profitable business model. It's one thing to keep huge amounts of inventory in centralized locations and ship items out across the country over the course of days. It's quite another to stock all that inventory redundantly throughout every state. So if I want to buy a specific pair of shoes that I can't find at Foot Locker, is Amazon going to stock 50 pairs on the off-chance that somebody down the street is going to buy them? Probably not.
In fact, the USPS runs a similar business model. One would then logically think (if this article is any indicator) that UPS and FedEx would go belly-up. I mean after all, if I can distribute mail to somebody's house for $0.50 in a day, how could UPS and FedEx compete with that? The reality is just the opposite. UPS and FedEx enjoy such enormous margins when compared to the USPS, that they want no part of the markets in which the USPS operates and it's too late for the USPS to compete with UPS and FedEx on parcels and important packages. I don't agree with the author's prediction at all.
I've got news for you- they didn't make any money on your order. Amazon is profitable but has razor-thin margins on the whole. They take losses on several markets, including Prime, gambling that the entire seamless, low-cost user experience will cause enough people to spend enough money to push them over the edge of profitability.
I for one have serious doubts about whether what the author describes (based to a large extent on pure speculation) would be a profitable business model. It's one thing to keep huge amounts of inventory in centralized locations and ship items out across the country over the course of days. It's quite another to stock all that inventory redundantly throughout every state. So if I want to buy a specific pair of shoes that I can't find at Foot Locker, is Amazon going to stock 50 pairs on the off-chance that somebody down the street is going to buy them? Probably not.
In fact, the USPS runs a similar business model. One would then logically think (if this article is any indicator) that UPS and FedEx would go belly-up. I mean after all, if I can distribute mail to somebody's house for $0.50 in a day, how could UPS and FedEx compete with that? The reality is just the opposite. UPS and FedEx enjoy such enormous margins when compared to the USPS, that they want no part of the markets in which the USPS operates and it's too late for the USPS to compete with UPS and FedEx on parcels and important packages. I don't agree with the author's prediction at all.
When Amazon lets me physically try out the feel of things while browsing them, see how well built a tool is, or how a piece of clothing fits, it might have a chance of killing local retail.
Until then, I like to see which pants fit best, which knife is most comfortable in my hand, which tablet is most responsive. Yes, if I already know what I want, I'll go to Amazon. But if I'm not entirely sure and I want to compare things, I'll go to a local store.
Until then, I like to see which pants fit best, which knife is most comfortable in my hand, which tablet is most responsive. Yes, if I already know what I want, I'll go to Amazon. But if I'm not entirely sure and I want to compare things, I'll go to a local store.
At long last, the dreams of the Coyote ordering from Acme and getting immediate delivery of his latest gadget to catch the Roadrunner come closer to fruition.
I don't think it will destroy local retail. All the businesses within a 10 minute walk of your home will be fine, it's still more convenient than same day shipping unless your very busy. It's the businesses slightly outside the core of the town that will suffer. If it takes you 30-60 minutes to drive to a store you might order same-day from Amazon.
The biggest challenge I see for amazon to come is, besides competition and makets and all that their ability to handle their whole supply chain. Amazon already proved that in terms of warehousing and distribution they are really ggod. but if there is one thing that comes with an ever increasing number of arehouses, especially if you want same-day delivery, is a ever increasing inventory level, in both number of items and value.
So from the outside one cornerstone of a strategy like this would be inventory management at at least regional if not even warehouse level. It's do-able, no question, but difficult. An advantage amazon has here is a huge history of point-of-sales data for most important regions they are operating in, no matter if there actualy is a amzon warehouse or not. And if they don't have (enough) point of sales data, well then it's to early to offer same-day service and all that.
All amazon has to do now is to keep operations up to the task... :-)
So from the outside one cornerstone of a strategy like this would be inventory management at at least regional if not even warehouse level. It's do-able, no question, but difficult. An advantage amazon has here is a huge history of point-of-sales data for most important regions they are operating in, no matter if there actualy is a amzon warehouse or not. And if they don't have (enough) point of sales data, well then it's to early to offer same-day service and all that.
All amazon has to do now is to keep operations up to the task... :-)
Here's the original Financial Times article that this one was mostly taken from (nb: this link avoids their paywall via google's url redirection):
http://www.google.com/url?q=http://www.ft.com/intl/cms/s/0/9...
http://www.google.com/url?q=http://www.ft.com/intl/cms/s/0/9...
The other day I ordered something from Amazon, and it showed up in a small cargo van, delivered by a guy without a uniform, and in a package with no UPS or FEDEX label (or any other delivery label I could discern apart from the amazon labels).
Was this some kind of test for Amazon ran delivery from a local warehouse?
Was this some kind of test for Amazon ran delivery from a local warehouse?
Workplaces should be an easy place to get same day delivery. At a large office you probably have 100+ Amazon orders each day that conveniently get delivered by the company's staff. Amazon could have their own truck just drive straight to the office building without getting UPS involved at all.
OK so pretty soon Amazon will have same day delivery. That's going to be great!
Then, can we have evacuated tubes that connect our homes to all of the retail outlets, or homes to homes maybe also, and then they could have like 5 minute delivery, or however long it takes the picking robot to get it and then for it to travel at hypersonic speed through the tube?
Maybe we should all live within a few hundred yards of the warehouses. Then upgrade the picking robots and streamline the warehouses and tubes so they can deliver items in less than a minute.
Then we can all have robots that pull the items out of the tube, open the packaging and hand it to us on our couches/beds.
I would totally buy a giant plastic jug of cheeseballs right now if it could arrive in less than a minute and be delivered to my hands.
Then, can we have evacuated tubes that connect our homes to all of the retail outlets, or homes to homes maybe also, and then they could have like 5 minute delivery, or however long it takes the picking robot to get it and then for it to travel at hypersonic speed through the tube?
Maybe we should all live within a few hundred yards of the warehouses. Then upgrade the picking robots and streamline the warehouses and tubes so they can deliver items in less than a minute.
Then we can all have robots that pull the items out of the tube, open the packaging and hand it to us on our couches/beds.
I would totally buy a giant plastic jug of cheeseballs right now if it could arrive in less than a minute and be delivered to my hands.
In the chicago area, you can order from McMaster Carr (mechanical hardware), and get same day delivery. Any company that builds anything mechanical is probably ordering something from McMaster Carr. This isn't an impossible problem.
> Physical retailers have long argued that once Amazon plays fairly on taxes, the company wouldn’t look like such a great deal to most consumers.
I love the audacity of "If you can't beat them, find some other way to beat them."
I love the audacity of "If you can't beat them, find some other way to beat them."
Local retail is their own worst enemy, at least those that have websites.
If I go to the website of a brick and mortar store, chances are I want to know what they carry in-store, because I need something specific and am planning to visit a store.
Ideally I'd be able to see what they have in stock at the local stores, so I can avoid a needless trip.
Instead, many retailers have larded up their online stores with online-only products. Some don't even give you an easy way to exclude those and see only in-store items.
This is stupid, and just makes me more likely to not bother visiting the store at all, opting to just order from Amazon.
If I go to the website of a brick and mortar store, chances are I want to know what they carry in-store, because I need something specific and am planning to visit a store.
Ideally I'd be able to see what they have in stock at the local stores, so I can avoid a needless trip.
Instead, many retailers have larded up their online stores with online-only products. Some don't even give you an easy way to exclude those and see only in-store items.
This is stupid, and just makes me more likely to not bother visiting the store at all, opting to just order from Amazon.
In Germany, when you order in the morning before noon, you will most likely get your stuff by the next morning without any special shipping at all. That's how efficient the German postal service is :)