Retailers Form Alliance on the Amazon Shipping Front
There’s no question that Amazon.com has used shipping to
gain a competitive advantage over other merchants. Now, a number of chains
are looking to negate that strength with a new shipping service that directly
competes with Amazon’s Prime subscription program.
Chains including Babies ‘R’
Us, Dick’s Sporting Goods, GNC, PetSmart and The Sports Authority are partnering
with ShopRunner to offer a year of two-day deliveries for $79, the same price
charged by Amazon. The new service also offers free returns, a perk not available
to members of Prime.
Amazon is the largest e-tailer in the country with an eight
percent market share, according to Hudson Square Research. That strength has
led retailers that normally wouldn’t work together to do just that.
“If you’re going to spend $79, you want a really broad assortment, and
by the end of the year, we’ll have an assortment of five million items,” Fiona
Dias, executive vice president of strategy and marketing for GSI Commerce Inc.,
the owner of Shop Runner, told The Seattle Times.
Collin Gillis, an analyst
at BGC Financial, said the new service will face an uphill battle. “It’s
late in the game. Amazon already has an established base of people,” he
told the Times. “And it’s losing between
$150 million and $350 million on shipping in a given quarter, so this is not
going to be a lucrative business for GSI.”
Brian Walker, an analyst with
Forrester Research, told The Wall Street Journal that
Amazon “can afford to lose money on a individual consumer if they can
make it up in volume. This is more difficult when trying to do this across
a network of retailers.”
Retailers in the new program are responsible for
handling fulfillment while ShopRunner tracks shipments and
handles bookkeeping.
“There are lots of pieces that you have to figure out,” Clay Cowan,
vice president of e-commerce at The Sports Authority, told the Journal. “That’s
one reason we view this as a pilot and will see how it goes.”
Discussion Question: Will the new ShopRunner two-day shipping subscription
program give Amazon serious competition?
The question is not two day shipping, it’s getting the orders right, and are there enough merchants offering enough products to make consumers care. Amazon has been selling across merchants for years and it took them a while to get it right. Will the merchants of ShopRunner have the fortitude to stick out the early days, absorb the initial losses and gut out the inevitable logistical headaches?
People don’t choose Amazon because of Amazon Prime–they choose Amazon Prime because of Amazon.
Amazon Prime is merely icing on the cake for a firm that already has consumers locked in for a variety of other reasons.
I happily pay my $79 per year without a second thought; but it would take a lot of deliberation (and continual reassessment) for me to establish a similar “relationship” with a broad mish-mash of other e-commerce vendors. It might be a nice concept, but ShopRunner will go away quietly while Amazon (and Amazon Prime) cruise along profitably.
It don’t see ShopRunner and Amazon being the same in any way. You log on to Amazon.com to shop, but you use ShopRunner to save money on shipping at member retailers. I do think it’s a good way for the retailers involved to offer their customer an incentive to buy online and save a trip to their stores, but they better make sure that returns can also be made at their stores. Do I think it’s going to impact Amazon in a big way? No.
The key for online shopping is a seamless customer experience. Amazon does a fantastic job of quickly guiding you through the entire purchase with the fewest amount of clicks. That is the reason they are so successful. If a group of competitors can meet or exceed that seamless customer experience, then it becomes a compelling offer to the marketplace.
It’s not Amazon’s shipping that attracts me to purchase; it’s Amazon. I have read nothing here that makes me change my mind or interests me enough to look into it further.
I believe in the competitive spirit. Therefore, I am hoping this becomes successful for them. However, when I read of the huge losses they are taking; it makes me ask why anyone would dare set foot in this murky water? I do think if they want it to succeed they will find the right way.
The consumer doesn’t go to the mall to “save,” they go there to “shop,” and have a variety of choices for that shopping experience.
ShopRunner is going to have to demonstrate that they are offering a convenience of a broad marketplace of goods if they are going to attract people to their site, and then keep them there at $79 per year. I watch the “Blonde Bombshell” (she’s a Boomer) as she conducts her online shopping…she’s a master at securing free or reduced price shipping already from the likes of major department stores, home furnishings, and clothing.
ShopRunner has to be more than a competitor to Amazon. They have to be a solution/benefit provider to the consumer. I don’t see this, at this stage.
Over time, it has become apparent what the benefit of prime shipping is to Amazon – increased share of wallet with customers across product lines that customers would not normally expect to purchase from the Amazon organization.
Other companies, lacking such a broad product line, have had less success in offering a prepaid premium shipping option to their customers. The bundling of a range of GSI clients into a single premium shipping package can provide a viable alternative for these Amazon competitors. However, the lack of a single unified interface for those different companies will make cross category purchasing difficult if not impossible.
Net of everything, the premium shipping option will not be the silver bullet for these other retail organizations. It will however add some additional value, particularly if it can be combined with a “membership-lite” program to create affiliation among customers purchasing across these retailers.
A little late to the party! Why would consumers who have experience with Amazon even look to these “specialists” for goods and services? My experience with Amazon is without flaw and it goes back over 8 years and hundreds of purchases. I have never joined the Amazon “prime” as getting free shipping only requires a $25 purchase. Why would I throw my experience out the window to do business with someone else and pay them for a service I get free from Amazon?
These retailers miss the point; the point isn’t shipping, it’s selection and service. If I want camo hunting pants, Amazon offers me the web, not just Dick’s. I’ll stick with the great pricing and super service I receive from Amazon.
Will ShopRunner establish a buying group for some online shoppers? Yes, but not likely those who already subscribe to AmazonPrime. ShopRunner creates the shopping mall that Amazon already is. It puts retailers in a “my group” for the shopper. So, it is not a bad idea.
But, shipping is a red herring in online merchandising. Who will pay more for a product to get “free shipping” when the total cost (cost + shipping) of a product from another retailer may be less? I suspect many. It isn’t a lot different than going to the mall to save shipping, but the trip to the mall costing more than the shipping would be.
The cost of shipping is an irrational determinant. But, it is a determinant. The nice thing about AmazonPrime is that no calculations have to be made with individual purchases. They have eliminated the negatively emotional baggage of “shipping.” But, the reality is you are paying for shipping somewhere in the Amazon profit equation.
Whether this works or not (and I hope for the consumer’s sake it does) is left to be seen but either way it’s significant.
The bigger story in my opinion is the concept at the heart of the initiative. It’s what I refer to as “aggregation”–specialty retail players coming together to collectively present a more potent proposition than a larger mass market competitor.
Technology is enabling this kind of collaboration and organization amongst businesses and I think as the trend continues, it’s going to create game-changing concepts. The idea of aggregation has the potential to radically change the way retail businesses go to market. This is what I find compelling!
The biggest news here is that retailers are waking up to the fact that Amazon is “the Walmart of e-commerce.” About time. Even though the total retail revenue numbers are still under double digit percentages, the writing is on the wall–sooner or later, there’s going to be a tipping point, and it’ll be 45%. No one’s sure how long that will take, but when/if it does, who’s in position to own online retail? Amazon.
Maybe, the other way to go is to partner with Amazon and just let them do the walking. If you can’t beat them….
The one strong positive here is recognition of Amazon’s leadership. Amazon is the premier SELLING organization in the world, just as Walmart is the premier DISTRIBUTOR TO BUYERS. This is a HUGE distinction. The recognition that Amazon is encroaching on offline “distribution” (retailers) with Amazon Prime, is being met by retailer’s copying of Amazon’s distribution program?
Amazon is eating these people’s lunch because Amazon is a skillful seller. And that’s what skillful sellers do to order taking distributors: eat their lunches.
It isn’t that ShopRunner is a bad idea, just that it is addressing a leak, rather than the hemorrhage….
They key here is to solve the true problem, rather than just part of it, which this appears to be doing. Better managing the logistics cycle and how it impacts the consumer is critical for Amazon. More importantly, they cannot afford to lose money on this…ever. Do it right, do it now, do it right…now.