Rumor Mill: Amazon Exploring Same-Day Delivery
By Tom Ryan, RetailWIre
The Financial Times reported in July that the reason Amazon is setting up scores of distribution centers across the U.S. is so it can soon start making same-day deliveries. Amazon hasn't discussed same-store delivery and told the San Francisco Chronicle it doesn't comment on "rumors and speculation."
The possible move would amount to a major shift for the online giant that has long sought to plant its massive distribution centers in tax-friendly states to avoid paying sales tax. Indeed, it may be prompted by several states passing laws closing the tax-free loophole in recent years. Amazon has also surprised many by reaching agreements with several states and some now see this as part of its warehouse proliferation goal.
Amazon has already been touting a same-day delivery option in select cities using local couriers.
The potential of widespread, reasonably-priced, same-day delivery sparked a debate on whether Amazon is better off with the price-advantage it has long maintained through its tax status or being able to be provide quicker delivery and convenience to customers.
Retail consultant Helen Bulwik told the Chronicle that she believes such a strategy from Amazon would represent a more significant threat to other online competitors than to brick and mortar. She adds, "People still want to shop, they still want to go into a store, and they will continue to do that."
She also said customers generally don't mind waiting for online purchases as much as initially thought, with average e-commerce delivery times actually increasing over the past few years.
On the other hand, a CNN article points to a Citigroup survey earlier this year. Fifty-two percent of Amazon shoppers surveyed, currently not paying sales tax, said they would be less likely to buy goods on the site if they had to pay that additional amount. Still, others see Amazon's ability to accomplish same-day delivery as a game-changer. Colin Sebastian, analyst with Baird Equity Research, told the Chronicle, "Once they have the facility in your backyard and trucks operating in your area, they become more competitive."
In a column on Slate.com, Farhad Manjoo proclaimed such a move would "destroy local retail." While brick-and-mortar has counted on instant gratification to lure customers, same-day delivery from Amazon "offers gratification that's even more instant: order something in the morning and get it later in the day, without doing anything else. Why would you shop anywhere else?"
How big an advantage would Amazon gain from same-day delivery? Do you think speedy delivery and convenience will offset the deterrent of paying sales tax?
Comments from the RetailWire BrainTrust:
There is a growing movement among Amazon's competitors to merge online shopping with the convenience of in-store pickup (Walmart) or use stores as mini-distribution centers (Macy's). Amazon needs to react to these kinds of developments to sustain its mastery of logistics as one of its key strengths (along with price and assortments).
To make this an achievable goal, Amazon is reaching deals with various state governments (New Jersey, for one) to open new distribution centers. This will enhance the states' tax revenues at the same time that Amazon expands its supply-chain advantage.
Richard Seesel, Principal, Retailing In Focus LLC
Same day delivery could be huge for Amazon. Not only will it allow the company to more effectively compete with local merchants (large and small), but it would provide a significant point of differentiation from other online merchants.
Sales tax is coming to the web. Amazon was smart to get in front of this with states and look for a new, better way to compete.
Max Goldberg, Founding Partner, The Radical Clarity Group
Amazon's operating costs have been increasing over time, and indeed they will probably face their own challenges as they continue to create more local presence and offerings. Some of their price competitiveness may erode as they fight to maintain "respectable" profit margins. Then again, we've seen Amazon's willingness to operate on very thin margins and even sustain losses as a way to gain footholds and leadership positions in new markets. Same-day delivery will definitely appeal to some shoppers looking to get "near-instant gratification".
I think this will play out over longer timetables than many might suspect. I also wonder about their plans beyond local distribution and rapid delivery. Will Amazon end up trying to compete by actually opening up physical shopping "showrooms" of their own? I wouldn't be surprised to see some radical partnerships form over time with traditional retailers looking to alter the competitive landscape.
Matt Schmitt, President & Chief Experience Officer, Reflect
To many, Amazon is seen as an immovable foe with a lock on consumer sales that is beyond touch. However, as pointed out by some points in Tom's article, there are consumers whose allegiance is price based. If Amazon has to negotiate state-by-state to maintain its tax free advantage, it demonstrates that it's susceptible to competitors if the rules of the game are the same for everyone. No surprise there.
Same day delivery is somewhat of a natural progression and not a surprise. Many strictly web-only properties offer free shipping and many clicks and bricks retailers now offer online ordering with same day pickup at the store. Local delivery is about the only thing on the delivery front that Amazon can do to try and maintain its advantages as competitors catch up.
Initially, it will sound great to consumers who can get delivery and more worrisome for local businesses that are threatened by Amazon already. Ultimately, the local delivery, state sales tax, pricing, and consumer wants aspects will reach equilibrium with Amazon (and other big e-tailers) and local businesses finding the niches that work for them. But the battlefield (especially for b&m) will have many, many casualties.
Ken Lonyai, Digital Innovation Strategist, co-founder, ScreenPlay InterActive
Yesterday (Sunday) I ordered a new Kindle from Amazon. I have Amazon Prime and could have received it on Wednesday with no delivery charge. I had the option to receive it today (Monday) for a $3.95 charge. That is a "no brainer" decision. I couldn't even walk out of my home to go to a store for that price. (By the way, in that financial calculation, my time is my most important commodity.)
With regard to sales tax, most simply, I don't understand the issue. We all pay sales tax. We expect to pay sales tax. If sales tax is not part of the pricing issue in B&M stores, why is for e-tailers? The advantage of online retailers is that they offer more convenience, selection and service. I would pay a premium to buy online. Fortunately, the business model is such that I don't have to.
Gene Detroyer, Professor, Entrepreneur, Adviser, Consultant, Independent
It's fascinating to watch all the various retail go-to-market strategies merge together. With so many big boxes owning more square footage than they really need, I think we'll see more retailers start to look like Amazon and then, to Richard's point, may the best supply chain win!
I do think the increased prices will set Amazon back. They are a price leader and have used that to disrupt retail. As the cost to shoppers goes up, the ability to see the merchandise and touch it may start to outweigh the convenience of ordering online. Amazon will continue to do well in categories like books where seeing and touching the product is not all that important, but in categories like apparel, as all retailers start to adopt virtual dressing room technologies and recommendation engines, it's going to be a much closer fight.
Lisa Bradner, Chief Strategy Officer, Geomentum/Shopper Sciences
Another step forward in Amazon's drive to dominate retailing of broadly distributed products. This one comes with big costs, however; increases in working capital to maintain increased inventory levels, increases in warehousing costs, and big increases in complexity in managing inventory over a much broader set of supply points.
All that said, Amazon is continuing to eat up market share as more and more customers eschew the mall experience to the ease of buying online. Shortening the delivery time will undoubtedly increase that conversion.
Bill Emerson, President, Emerson Advisors
This is really a no-brainer. There are three basic components to retail: 1. The meeting of the minds -- the seller agrees to sell and the buyer agrees to buy. Amazon is so far ahead on this issue that the others don't even understand their deficiency. Really sad. 2. The delivery of the agreed good or service. 3. Payment for same.
The future of retail IS the (electronic) meeting of the minds. It doesn't have to be electronic, but bricks retailers are likely to simply suck their thumbs on this one, until the shoppers' own technology floods the stores. Meanwhile, Amazon is so far ahead in understanding the PROCESS of the meeting of the minds that they largely have the game to themselves. It's like having a real salesman loose amongst a pack of order-takers, that look to themselves for intellectual leadership.
Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Adjunct Senior Fellow, Ehrenberg-Bass Institute
I believe that online consumers are used to the delay between purchase time and delivery due to sites such as eBay, Amazon and the online branch of retailers such as Target and Walmart. Online shopping is planned and calculated by consumers and the delivery delay is expected in exchange for the lower cost (i.e., sales tax). If a consumer wants to take possession of their purchase the same day, they will visit the brick and mortar store.
Zel Bianco, President, founder and CEO, Interactive Edge
Let's slow this down a bit. First of all, if Amazon were to do this, it would almost certainly be extremely limited, most likely to select customers in major cities. So this concern that this will somehow destroy physical stores is ludicrous.
Secondly, the price issue here is not taxes, it's how much Amazon would charge for same-day delivery. There is a good chance that this will be reasonably more than its overnight charge -- making this attractive for last-minute gifts and emergent items -- and not much else.
I think this would be a great Amazon service, but there's reason to think this will represent anything beyond a tiny sliver of their sales.
Evan Schuman, Editor, StorefrontBacktalk.com
Amazon's same-day delivery is the worst-kept secret in retail, and consumers can't wait. This could be an even bigger game-changer than Amazon Prime.
Will other retailers offer to hand-deliver purchases made online from a given store, and deliver to a defined delivery area?
Cathy Hotka, Principal, Cathy Hotka & Associates
This is a huge advantage for any retailer that can deliver on this promise, both for online and brick stores. Shoppers are asking for this service and many local brick stores have offered this for years. Online needs to leverage existing distribution facilities. Not everything needs to be built from scratch. There is plenty of unused and underutilized warehouse space.
Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM
If true, this would accelerate trends that are already in motion. Mass retail of third party goods is increasingly about speed and convenience with Amazon, Walmart and Macy's well positioned to survive and thrive. Brick and mortar shopping will survive where the retailer can create an experience or maintain a unique assortment: think Apple, H&M, REI and others. A couple of big retailers that so far are executing on both of the above are Target and Nordstrom; it will be interesting to see how long they can continue to fight the battle on all fronts.
Martin Mehalchin, Principal, Lenati, LLC
I think it is pretty obvious what the strategic plans for Amazon are. Last year's (or was it early this year?) announcement that they had bought a robotics company for warehouse (fulfillment center) automation, their sudden willingness to negotiate on site locations using sales taxes as a negotiating point, and their new emphasis on even speedier delivery can mean only one thing.
Brick and Mortar retailers better watch out. They will soon get everything they have been asking for regarding sales tax parity. The challenge will be Amazon's distribution network. Imagine if it is extended out to retail locations. If there is no longer any penalty for Amazon putting up retail locations because they are already charging sales taxes, instead of consumers "showrooming" at the big box retailers, they will be visiting Amazon show rooms conveniently located in consumer neighborhoods. Then the big box stores will have everything they have asked for: Amazon will be charging sales taxes and consumers will no longer be using their stores to investigate Amazon purchases.
Does anyone see a problem here?
Bill Bittner, Principal, BWH Consulting
I would disagree that sales tax isn't part of the issue. I don't think it is the dollar amount, but rather consumers just like to not pay sales tax. Why else would state tax free weekends be so successful?
Doug Fleener, President and Managing Partner, Dynamic Experiences Group
If Amazon can currently afford to ship items overnight for $3.99/item anywhere in the US to prime members, from warehouses in Nevada and Kentucky, it can certain afford to ship same day for those same rates, once it has major DCs much nearer population centers.
Amazon is investing $130 million in new facilities in New Jersey, $135 million to build two centers in Virginia, $200 million in Texas, more than $150 million in Tennessee, $150 million in Indiana, and $500 million and in California (including hiring 10,000 people). That's $1B in new DCs!
UPS and FedEx routinely make same day deliveries from their local DCs to their delivery areas. Why would anyone expect Amazon (with an Army of Kiva robots) to be any less efficient in markets adjacent to their new DCs?
Jason Goldberg, VP Strategy & Customer Experience, CrossView, Inc.