Do retailers have to catch up to Amazon’s logistics powerhouse?

Discussion
Photo: RetailWire
May 03, 2021

Amazon.com has made significant progress over the last year in last-mile fulfillment with its vans crisscrossing neighborhoods with greater frequency. Company officials last week detailed the many benefits coming from its expanding logistics network.

On its quarterly analyst call, Brian Olsavsky, CFO, noted that Amazon increased its fulfillment capacity — including through its own shipping service, Amazon Logistics (AMZL) — by 50 percent in 2020. He confirmed the “majority of our units are going through AMZL today” rather than UPS, U.S. Postal Service and other third-party carriers.

Amazon was delivering about two-thirds of its own packages last July, according to ShipMatrix data.

Mr. Olsavsky noted that Amazon’s 80 percent hike in capital spending in the trailing 12 months in the first quarter reflects not only investments in fulfillment centers, but in-line haul trucks, Amazon Air and sorting centers to support “middle mile” needs. Amazon’s DSP (delivery services partner) program has expanded to more than 100,000 contractor drivers.

Among the benefits of internal delivery capabilities, the cost of delivering packages on its own “has become very competitive” with third-party delivery, Mr. Olsavsky said on the call. Shipping costs rose 57 in the first quarter.

But a major advantage, he noted, is sending out packages in a “continuous flow.” Batches of orders leave warehouses five or six times a day, rather than being handed off in a single batch to a third-party carrier once a day.

“That gives us a lot of ability not only to control the flow of the product, but also the flow of information,” he added. The visibility helps Amazon better tell customers how many stops away their package is as well shorten “cutoff times” between order and expected delivery.

“So, lots of advantages. We are continuing to invest and we’ll see a large investment in this area through 2021 as well. We do think that it may also spill to 2022,” Mr. Olsavsky said.

The growth comes as third-party carriers have increased rates and extended peak surcharges amid elevated e-commerce volume.

DISCUSSION QUESTIONS: Where are Amazon’s largest logistics advantages (costs, speed, control, information access) as it builds out its internal network? How can Amazon’s retail and shipping competitors best compete?

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34 Comments on "Do retailers have to catch up to Amazon’s logistics powerhouse?"


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Mark Ryski
BrainTrust

Amazon’s advantage is the combination of all these factors combined – from cost to access to information. The capability and sophistication Amazon has built would be difficult if not impossible for most if not all – including Walmart and Target – to replicate. Retailers should not try to compete with Amazon on logistics, but rather focus on the strengths they have, namely making better use of their physical stores.

Neil Saunders
BrainTrust

Amazon’s investment in logistics is a major competitive advantage, especially in terms of the speed and flexibility with which products can be delivered. Given Amazon’s volumes, such investments make sense. Few other retailers could, profitably, invest to such a degree. However a lot of traditional retailers have an advantage Amazon doesn’t: stores. These can be used as points of collection or fulfillment to increase fulfillment capacity and efficiency. That’s where a lot of future investment will be directed, along with a ramp up in third-party logistics via companies like Instacart.

Gene Detroyer
BrainTrust

About 10 years ago, online sales represented 5 percent of all retail sales. It continued to jump at a growing rate against a mature retail market. 2020 accelerated that growth and now online represents over 20 percent. Will it be 25 percent by 2025? 35 percent by 2030? The question every retailer should be asking is “How do we take advantage of this trend?” Investment with brick-and-mortar stores will not even slow the trend.

Neil Saunders
BrainTrust

You know what’s growing faster than online sales? It’s omnichannel – a subsegment of online retail where physical stores are used as part of the purchase or fulfillment journey. Smart retailers are investing in stores as part of that ecosystem – and that includes Amazon which has plans to open up quite a lot of physical outlets. This isn’t a battle between stores and online: it’s about using all assets to create a seamless, efficient experience for the customer.

Gene Detroyer
BrainTrust

I agree. “This isn’t a battle between stores and online: it’s about using all assets to create a seamless, efficient experience for the customer.” Those retailers that see it as one way or the other will surely lose in the future. In the 10 years the brick and mortar store as we know it today will not exist.

Lee Peterson
BrainTrust

We just fielded a study, 2100 consumers across the US, same demo. One question was, “what will be your primary form of shopping moving forward?” 60% said online vs stores. So, if omnichannel (BOPIS) is so big, the question is, how long will it take for many of the “stores” to become fulfillment centers?

Gene Detroyer
BrainTrust

This is not a surprise at all. I imagine by 2030, almost all will be online and there will be limited BOPIS because customers will want everything delivered and the technology and resources will be available to make that happen.

David Naumann
BrainTrust

Amazon realized early that speed of delivery is a huge differentiator and they have taken bold steps to optimize their supply chain. Unless you are very large chain, it isn’t feasible to invest in your own transportation network and you have to rely on the major carriers. FedEX, UPS and other carriers are essentially the competition to Amazon and accelerating delivery speed and maybe even expanding into warehouse services for multiple retailers could make them more competitive. Amazon has a huge advantage that is difficult to replicate.

Gary Sankary
BrainTrust

I find it interesting that the title of this is article is about how retailers need to catch up to Amazon. A great lesson here is that not so long ago the threat of Amazon was discounted by retailers who didn’t see a need to invest in logistics. Today of course, learning from the very market they are disrupting, Amazon has clear advantages with local logistics infrastructure with warehouses, fulfillment centers and fleets of trucks that reach 99 percent of American homes in the same day.

That said there are companies that are successfully competing with Amazon across the retail spectrum. The succesful competitors are those who remain focused on their strengths. Target is turning around curbside orders in an hour, from order submission to putting the product in your trunk. Dick’s Sporting Goods is creating in-store experiences for customers that bring back concepts of touching and feeling merchandise before you buy it. Best Buy is offering dedicated personal services for technology buyers. Key is to focus on differentiation and build great relationships with customers.

Gene Detroyer
BrainTrust

The only way for a retailer to reasonably compete with Amazon’s logistic ability is to ship via Amazon. Amazon has invested in and developed a logistics operation that checks all the important boxes for the customer. Speed, cost, information, convenience. And the better they do at it, the farther away they are from what a traditional retailer can do.

In this discussion, Amazon’s competition is not other retailers (not even Walmart or Target) it is FedEx, UPS and even USPS. Can retailers convince the third-party logistics suppliers to match Amazon’s ability to deliver retail? It is a big ask when retail is not their primary customer.

Liza Amlani
BrainTrust

Retailers should continue to focus on their retailing strengths such as getting to know their customers better, building relationships with them to increase loyalty, and delighting them.

The beauty of a non-Amazon retailer is that they can align their values with their customers around things like sustainability, reducing carbon emissions and excess packaging.

In fact, retailers should leverage Amazon and their go-to-market strategies around innovation, last mile, and technology solutions instead of thinking of them as their competition.

Zel Bianco
BrainTrust

There is no doubt that Amazon is a logistics powerhouse. It will be difficult if not impossible for most retailers to compete with them. I do however feel that there are ways in which other retailers can stand out. In NYC, for example, you do not see many Amazon vans crisscrossing neighborhoods. What you see are rental trucks, usually covered with graffiti parked at corners where packages are being thrown onto the street to be sorted. There is no sense of caring for these packages, they are just thrown around as fast as possible to get the job done.

Yes, we want our packages delivered as quickly as possible but do we really want to handle them when they have been thrown on dirty streets? There seems to be a dark side to how Amazon is conducting their business and it is not always as professional as one would think.

Lisa Goller
BrainTrust

Scale, data, control and efficiencies that save time and money give Amazon a logistics edge. Vertical integration for supply chain visibility and control minimizes delays and costs. Even as shipping costs rise, Amazon still offers fast, free delivery.

Amazon’s signature innovation and bold vision inspired investments in electric vehicles, e-bikes, autonomous vehicles and airplanes. It even has an army of former employees who left to launch their own delivery companies that serve Amazon.

In response, rivals can consider strategic partnerships, acquisitions, aggressive cost cutting and same-day service to win with impatient shoppers. Internal development would take far too long.

David Weinand
BrainTrust

Yeah, good luck trying to compete with that. Having the capital Amazon has both from the public markets and AWS puts them so far ahead of any other retailer that it would be a huge risk for other retailers (except maybe Walmart) to try to replicate.

Paula Rosenblum
BrainTrust

But why bother?

Lee Peterson
BrainTrust

Amazon is now the “Kleenex” of retail. A majority of consumers go to them first for just about ANY purchase, for a plethora of reasons that with the exception of a few massive players like Walmart, will be impossible to take on head to head. What retailers should focus on going forward is what Amazon CAN’T do, like better service (in home?), excellent employees, proprietary brands (like Target), and neighborhood stores with a keen eye on fulfillment (a staple now). A toe-to-toe with Amazon is a recipe for disaster.

I am reminded of a Sam Walton expression during their heyday of fear from most retailers, he said, “it’s easy to compete with us, just do what we don’t do.” — easier said than done with Amazon, but definitely a spot on strategy.

Raj B. Shroff
BrainTrust

I agree with Mark; their advantage is in all areas combined because they have a vast assortment. People visit Amazon because they can FIND an item from a variety of choices, have plentiful ratings and reviews, and then get it reasonably fast. And how fast do people really need things? I think that if a retailer can get it delivered in a reasonable amount of time, that’s fine.

Retailers should get the blocking and tackling right. Target is using Shipt and others to get more local fulfillment to speed up delivery. Retailers should partner with UPS, FedEx, etc to find better tracking methods to provide more transparency to customers in terms of shipment progress. As other panelists have said, leverage their stores, BOPIS, etc.

Paula Rosenblum
BrainTrust

This reminds me of an old story — short one-liner — a guy needs a tank of gas so he buys an oil well, refinery, etc.

I know it’s not a popular opinion, but I think it’s ludicrous. What a dumb use of free cash! If Amazon were a good corporate citizen, it would use the USPS more often in the states. Competitors should stick to their knitting, be better retailers and “hug their customers and employees.”

Gene Detroyer
BrainTrust

If the USPS could provide what Amazon (and the customer) wants, Amazon would use the USPS. Amazon is playing the perfect strategic game of dominoes for corporate growth, exactly as I have taught it to my students for years. One will never understand Amazon if we keeping thinking Amazon is a retailer. It never was and being a retailer was never in the growth plan.

Paula Rosenblum
BrainTrust

I know Amazon is not a retailer. Amazon is also a not particularly good logistics provider.

Ryan Mathews
BrainTrust

Amazon’s largest logistic advantages are consumer connectivity and trust, the rest is just networks; and logistics networks tend to sub optimize over time. For years I have written here that I don’t believe Amazon’s greatest strength is their logistical model, but rather their ability to build webs of digital and physical engagement points around the consumer — whether that’s through Echo devices, streamed entertainment content on the Amazon channel, subscription services, pharmaceutical packaging and delivery, or just good old Prime. No other retail or shipping service today has that same advantage. What Amazon has done is nothing more or less than made millions of households nodes in a continuous loop logistical model that goes far, far beyond mere distribution of product. How do you compete with that? If I knew I’d be on a beach now.

Gene Detroyer
BrainTrust

This is a great description of what Amazon is: “… millions of households nodes in a continuous loop logistical model that goes far, far beyond mere distribution of product.”

Jeff Sward
BrainTrust

Is the competition at the logistics level or the experience level? Is this about the convenience offered by logistics and delivery or about the experience of shopping? Do I want to eat every meal at home just because there are great delivery services? NO! Sometimes it’s all about the experience of eating out. Ditto apparel, groceries and other products. Sometimes it’s all about the experience of shopping at the store or mall. Brick and mortar retailers have to maximize their strengths, rooted in the physical store. And of course offer solid e-commerce and delivery services. But brand loyalty built at the store level has got to be one of the biggest competitive weapons retailers have. Explore + Experiment = Experience. Offered and refreshed at the store!