Rumor Mill: Amazon Exploring Same-Day Delivery

Discussion
Jul 16, 2012

The Financial Times reported last week 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?"

Discussion Questions: 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?

Join the Discussion!

32 Comments on "Rumor Mill: Amazon Exploring Same-Day Delivery"

Notify of

Sort by:   newest | oldest | most voted
Dick Seesel
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.

Max Goldberg
BrainTrust

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.

I love the idea of being able to shop where there are no lines, no driving required, no out of stocks and no-hassle returns.

David Biernbaum
BrainTrust

If Amazon offered same day delivery it would be absolutely amazing. This would increase Amazon’s ability to provide products to businesses, as well as to consumers with urgent needs.

Matt Schmitt
BrainTrust

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.

Gene Hoffman
Guest
Gene Hoffman
4 years 11 months ago

We are living in the commanding age of speed and instant gratification. Same-day deliveries fit into that mindset and that would be a plus for Amazon. However, quick deliveries have a potential enemy, psychological though it may be, and that is paying tax for online orders after not having to do so for years.

In addition, we are also living in an era when taxes, tax increases and tax reductions have become part of our daily bombardments. That has numbed us to whatever reality really is. In that muddled understanding re taxes, speedy delivery would seem to overcome paying sales taxes … and the commercial river of Amazon would roll onward.

Ken Lonyai
BrainTrust

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.

Gene Detroyer
BrainTrust

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.

Lisa Bradner
Guest
Lisa Bradner
4 years 11 months ago

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.

Steve Montgomery
BrainTrust

One of the reasons customers like brick and motor is that there is no delay between the purchase of the item and their opportunity to begin using it (with the exception of items that require delivery). Amazon’s same-day delivery eliminates most, if not all of that advantage for B&M retailers. I would expect this would make Amazon’s total purchase experience even more attractive to those customers who shop on the internet.

Bill Emerson
Guest
Bill Emerson
4 years 11 months ago

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.

gordon arnold
Guest

Urgency is capable of offsetting price as an objection, along with additional costs like delivery, pick up, assembly, set up and taxes. Limited supply for highly desirable product and or service is another factor that erodes cost consciousness. I find it most telling that Amazon will use third party carriers to examine this option only in select markets. This could indicate that Amazon is not at all sure of the potential for this service. Unless of course they are considering pizza, road side service and flowers as new inventory/service items.

Doug Fleener
Guest

I think it was/is only a matter of time until Amazon did this is in major markets. It will definitely hurt some B&M stores, but at least it will level the sales tax playing field.

Donna Brockway
Guest
Donna Brockway
4 years 11 months ago

This is one more step closer to Amazon closing the gap between being exclusively an online retailer to a full bricks and mortar player. The message to me is, retailers will all have to offer consumers both methods of shopping — online and in person, as well as the convenience of goods being delivered (cheaply) or available for pick up. Amazon clearly sees the future of retail, and they are working fast to make it happen. Hopefully, other retailers see the same future, and will want to jump in and compete head to head with them.

Joe Nassour
Guest
Joe Nassour
4 years 11 months ago

Wow, yes! If they keep the same pricing and add same day… Wow!

Herb Sorensen
BrainTrust
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. Electronic payment has long been supervised in bricks stores at the checkout, but that shopper-hated process is about to vanish. Which leaves the delivery of the goods as the final controlling factor on growth of sales and profits. How’s that? THE fundamental law of existence is the faster you do something, the more of it you can do.… Read more »
Zel Bianco
BrainTrust

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.

Brian Numainville
BrainTrust

A natural progression for Amazon, this move would remove one of the last barriers that they face in appealing to shoppers desiring instant gratification. While two day free shipping with Prime has been great for me, it would be even more appealing if I could order and receive the item the same day, especially for “must have it now” items.

Evan Schuman
Guest
Evan Schuman
4 years 11 months ago

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.

Cathy Hotka
BrainTrust

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?

John Karolefski
BrainTrust

Clearly, this is a game-change!

Ed Dennis
Guest
Ed Dennis
4 years 11 months ago

If that were the case, I don’t know if I would ever leave the house except to go to church. If Amazon is able to pull this off, then I look for fresh and frozen grocery to soon follow.

Ralph Jacobson
BrainTrust

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.

Martin Mehalchin
BrainTrust

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.

Liz Crawford
BrainTrust

Great! Webvan taught us that this business model works best with highest population densities….

Craig Sundstrom
Guest

Let’s get a little perspective here:
(1) this is all rumor;
(2) “same day” — even if it WERE to be offered — is only feasible with a host of restrictions (order by a certain time, at a certain distance, etc.);
(3) reportedly Amazon already bleeds red with free delivery policies, and this could exacerbate that (or not, depending on how it’s priced);
(4) there’s fast, then there’s silly fast… how many items are really needed THAT day (vs. 1 or 2 days)?

jack flanagan
Guest
jack flanagan
4 years 11 months ago

Time for the brick and mortar retailers (of all stripes — local, regional and national) to move on to their next big excuse now that the sales tax playing field is about to be “leveled.”

Fact is that the Amazon experience is far more than “no sales tax” — though that certainly doesn’t hurt. The Amazon experience has always been great and continues to get better. How many brick & mortar folks have their current (never mind former) customers saying that?

There is an old saying: “When you want it bad you get it bad.” The folks who just knew that the “unfair sales tax advantage” was why they couldn’t compete are about to “get it bad” — very bad indeed.

Ed Rosenbaum
BrainTrust

Imagine sitting in a competitor’s board room and hearing this. This can bring a tremendous change to the online industry. I still can’t imagine same day service everywhere. There have to be zones and outer zones to make this work within the same day. All that we have said about this doesn’t mean brick & mortar will suffer much of a loss.

Bill Bittner
Guest
Bill Bittner
4 years 11 months ago

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?

Doug Fleener
Guest

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?

Obviously, smart retailers will continue to evolve their offering and service/experience to compete with Amazon same-day delivery, but they have no alternative since retail as we know it continues to go through rapid change.

Roger Saunders
BrainTrust

Amazon has a significant financial accounting line figure for delivery purposes. When those types of numbers continue to grow, much like credit card fees, they eventually capture a need to get a different view.

Amazon picks up speed of service, as well as the opportunity to take some costs out of their system with this approach. Could pay off for them both with consumers, and as good “corporate citizens,” not to mention they can head off the ongoing legal costs that the sales tax issue has created.

Amazon also has the opportunity to “test market” the service as distribution centers are built, instead of crushing their system with the same day offering all at once.

Daryle Hier
Guest
Daryle Hier
4 years 11 months ago

Depending on the same-day delivery cost to the consumer, on the surface, this seems like a slamdunk. This is the future because people are more and more demanding and not willing to wait, plus consumers are just plain getting used to ordering online, period.

The question at the end really says it all. “Why would you shop anywhere else?”

Jason Goldberg
BrainTrust

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?

wpDiscuz

Take Our Instant Poll

How likely is Amazon to gain market share from brick and mortar retailers as a direct result of offering same-day delivery?

View Results

Loading ... Loading ...