Should (can) rivals meet the free one-day delivery bar being set by Amazon?

Discussion
Photo: RetailWire
Apr 26, 2019
George Anderson

Amazon.com has long maintained that its Prime membership program is “the best deal in retail.” Yesterday, the e-tail giant announced plans to make the program even better by lowering the amount of time it takes to deliver products from two days to one.

Brian Olsavsky, Amazon’s senior vice president and chief financial officer, told analysts on yesterday’s first quarter earnings call that the e-tail giant was well into the process of “evolving” the company’s free two-day standard option on Prime eligible purchases to one while continuing “to offer same day and Prime Now selection in an accelerated basis.”

Amazon, according to Mr. Olsavsky, “has expanded our one-day eligible selection and also expanded the number of zip codes eligible for one-day shipping.” The company plans to invest $800 million in incremental spending during the second quarter to further ramp up one-day shipping for Prime members. Consumer Intelligence Research Partners (CIRP) estimates that Amazon currently have 103 million Prime members in the U.S.

While Amazon is in the process of moving to a one-day standard, it is also accelerating its same-day and Prime Now delivery times as well. To reach its goals for one-day delivery, Amazon plans to continue using third-party services – FedEx, UPS and the U.S. Postal Service – in addition to its own delivery fleet.

Amazon rivals will be under pressure to keep pace with the e-tail giant as it raises consumer expectations around delivery times.

On a RetailWire webinar last November, Rakuten Intelligence principal analyst Ken Cassar shared research that showed Best Buy had cut the time it takes to get product from the warehouse to customer from 6.3 days to 2.7 over the past two years. Best Buy’s improvement, he said, was consistent with a trend seen across retailing.

Amazon saw the pace of its retail growth slow to 17 percent in the quarter as third-party sales moderated and Whole Foods posted a one percent increase during the period. The company did report record profits of $3.56 billion driven by its AWS cloud business and ad sales.  

DISCUSSION QUESTIONS: How will Amazon’s guarantee of one-day shipping for Prime memberships affect the expectations that consumers have about deliveries of online orders? What will this mean for Amazon and its competitors?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I think competitors should stay sharp on price, sell unique products, and try to do good karma things."
"There’s just no way right now to offer one-day shipping profitably without negative environmental impact and gross labor rights violations swept under the rug."
"Other retailers will need to find ways to compete, it doesn’t have to be shipping. It can be product selection, customer service, BOPIS, quality of products, etc."

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29 Comments on "Should (can) rivals meet the free one-day delivery bar being set by Amazon?"


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Dick Seesel
BrainTrust

Amazon’s effort to sweeten the pot for Prime members will put pressure on its competitors to keep up. But Amazon raises the bar for itself every time it changes customer expectations on fast, free delivery. The company’s latest quarterly results suggest that Amazon has a sales problem although its earnings are growing nicely. This sounds like a signal that Amazon is willing to raise its own delivery costs in an effort to recapture market share from competitors.

Mark Ryski
BrainTrust

Amazon just upped the ante – again. Clearly Amazon sees one-day delivery as among its most important objectives. It’s understandable. Not only does this create even higher expectations among consumers, which gives Amazon an edge with consumers, it’s incredibly difficult if not impossible for other retailers to replicate profitably. When it comes to fast delivery, Amazon is the leader and one-day delivery secures this spot.

Jeff Sward
BrainTrust

Amazon has given themselves a tough, and expensive, assignment. And they have given the competition an enormous headache. Amazon is proving yet again that they are willing to do what it takes to be the default destination to both start and finish the shopping and buying experience. This is a pre-emptive move that few will be able to replicate. “Free” shipping was already a burden. This just sets the bar that much higher.

Art Suriano
BrainTrust

Amazon implementing same-day delivery will no doubt be a game changer for many of its competitors. Shoppers that want it now will opt for the same-day delivery and chances are many of them are already Amazon customers. I see the problem being more of an issue for other e-commerce competitors and not as much for brick-and-mortar. Those who shop stores tend to want to see the item before purchasing it; however, if the item is not available at the store and requires it to be shipped, depending on the delivery time, I can see customers leaving and buying the item on Amazon. I just read today that Alphabet’s Wing Aviation got FAA approval for drone delivery. That will be the next game changer. We are living in a world of instant gratification making competition the most challenging it has ever been. Yet despite all these new opportunities, it will still come down to the company that knows how to “wow” their customer with service, quality, and excellent shopping experience.

Brandon Rael
BrainTrust

Amazon raised the bar years ago with their two-day Prime shipping commitment, and now they are raising expectations again by committing to a one-day delivery value proposition. It’s a losing sum game for retailers and brands to attempt to compete when Amazon’s a fulfillment juggernaut. Amazon has invested significantly in their fulfillment capabilities to help raise their sales, but to also help contain the mounting shipping costs.

Just as Walmart, other retailers, and brands have been improving their fulfillment capabilities, The fulfillment and speed to the market battleground is where winning is done. It will be interesting to see how Walmart and the rest of the competition react to this development.

The challenge is how brands and retailers react to this. Do they continue to raise the experiential bar, or attempt to go head-to-head with Amazon by investing in their speed to market?

Neil Saunders
BrainTrust

The truth is many retailers can go one better: they can offer same-day pickup from stores. It’s more cost effective for them, and many consumers actually prefer it to delivery. Amazon is not so fortunate; it doesn’t have stores that can fulfill in this way, so it has to enhance its delivery options for core customers. That’s going to come with a hefty price tag, albeit one Amazon can afford.

Other retailers now need to determine how they respond in terms of delivery to home. Over time we’re likely to see options enhanced for shoppers, with more of the cost being absorbed by retailers. The question is: how many can afford it in the way Amazon can?

Georganne Bender
BrainTrust

Same day pickup in-store is definitely a bonus. I can’t stop thinking about the number of boxes being thrown out every day from online sales.

Scott Norris
Guest

Index data from the Bureau of Labor Statistics shows corrugated shipping-box costs have increased 44 percent over the last 10 years, with a noticeable spike from 2017 onward. This adds margin pressure not just for retailers but for everyone all the way up the production chain!

Brandon Rael
BrainTrust

Great perspective Neil.

This is a no-brainer for retailers as they continue to compete with Amazon. However, there are organizational, technology and even cultural changes that have to be established in order for retailers to fundamentally turn on the omnichannel switch, and truly provide products the same day or next via the BOPIS value proposition. This is one of the reasons why Amazon acquired Whole Foods, and why they continue to express their ambitions about opening more brick & mortar locations.

Paula Rosenblum
BrainTrust
All I could think of when I read the announcement was “Man, you can do so many things for yourself when you don’t have to pay taxes on your profits.” And I did not think of that in a good way. I mean, perhaps there are some things that might serve society as a whole a bit more than getting our commodities in 24 instead of 48 hours. Of course very few retailers will be able to follow — they generally don’t have $11 billion to burn. But Amazon needs to be careful here. Sentiment is starting to turn against the giant, and this isn’t going to improve it. It may give them a short boost in sales, but I generally don’t think so. Maybe Mr. Bezos should think of some good karma things (no, $15/hour wages really don’t count). When someone said the other evening that Walmart takes 9 percent of store sales in the U.S., while Amazon takes 49 percent of online sales, and people start internalizing that, it makes people sit up… Read more »
Joanna Rutter
Guest
6 months 19 days ago
Amazon is the only company who could even attempt to deliver on this promise today. The promise is carried out by a troubling system worth calling out directly. The exploited party in this story is Amazon’s workforce — largely underpaid, contracted by third-party employers, most without benefits or healthcare, prevented from organizing — along with the factory labor that produces the products Amazon sells. This is not a radical reminder; we know the stories of heart attacks on fulfillment floors. We also know the environmental impact of speedy shipping and the glut of packaging waste stacking up in landfills. This is the ecosystem that makes one-day shipping possible. Behold our innovation. Instead of resigning to some kind of “this is the way it goes” determinism until the government intervenes, Amazon’s rivals can compete for the consumer’s conscience by listening to their own, and listening to their customers. There’s just no way right now to offer one-day shipping profitably without negative environmental impact and gross labor rights violations swept under the rug. Rivals can tighten up… Read more »
Tony Orlando
BrainTrust

Joanna, consumers want great deals delivered to their doorstep period, and Amazon does it better than anyone else. The environmental impact never enters their minds, and for the government to step in and start regulating this because it is for the common good, then we are all in trouble. Government makes everything worse, and Amazon will do what it takes to dominate the marketplace, for their shareholders. Consumers love simplicity, and no one does it better.

Joanna Rutter
Guest
6 months 19 days ago

Tony, I imagine we’ll disagree passionately (though civilly) on that. I tip my hat to you and your business, and refer anyone interested to Scott Galloway’s writing/videos on the historical precedent for breaking up Amazon.

Directing us elsewhere mainly out of curiosity — I see you’re an owner of an independent grocery store. What pressures if any are you feeling from chain competitors to offer curbside pickup and other tech-enabled services? (How do these headlines play out on your shop floor?) Are your customers asking for those services?

Tony Orlando
BrainTrust

I have order and pick up for deli and meat deals, as they are my main reason for being here, and they must come into the store for pickup. Catering also can be ordered and picked up as well. Trying to be like Walmart with all their curbside and delivery options is impossible to match, but I deliver catering to my customers for a nominal surcharge.

No one knows the difficulties of dealing with mega stores like a small grocery store, and it will only get worse for the small independents in rural poor areas, which is where Walmart, Aldi, and Dollar stores dominate.

My perishable mix in deli, meat, and bakery is 54% of sales, so it is my niche to beat the big boys every day. The staple grocery business will continue to shrink for us, but Deli keeps growing.

Amazon will be the largest corporation on the planet soon, and I’ll be semi retired by then.

Have a nice weekend

Susan O'Neal
BrainTrust
6 months 19 days ago
Once again, Amazon’s super power is both being there at the point in time that a consumer thinks “I need or want X” and then satisfying that need/want as quickly as possible, which happens when the product is in the consumers’ hands. Of course one-day delivery strengthens that super power. What makes this challenging is the comprehensiveness of the offering. No other retailer can afford to make that same offering as comprehensively as Amazon. It reminds me of the impact of Walmart’s comprehensive EDLP (everyday low pricing) strategy. The only way competitors could respond was through a high/low pricing – strategically lowering pricing on specific items below the point of profitability but making up that profit elsewhere with the trip. The only way other retailers will be able to compete with the Prime offering is to strategically offer something significantly better – likely via in-store pick up. Another consideration is the fact that Amazon subsidizes the cost of Prime by charging suppliers for being Prime eligible. In a perfect world, that up-charge shows up as… Read more »
Oliver Guy
BrainTrust

Delivery speed is a differentiator – one which Amazon knows it can use to do a lot of damage to its competition. To me the best way to compete is using low-cost third party delivery companies – a third party which can work across retailers picking up from their dispatch locations (hopefully using stores and store inventory – assuming they have the visibility into the inventory to allow this). A third party is likely to have a better chance at scaling appropriately. I feel like a broken record – collaboration and exploitation of ecosystems is the only way to go.

Kai Clarke
BrainTrust

Amazon’s evolution to a one-day shipping standard is just one more way to continue challenging the retail segment. Moving to this standard requires the rest of the retail world to enhance its performance, customer service, and delivery (logistics) management. This performance level is already being demanded by consumers, and Amazon is only further enhancing the value of its Amazon Prime service. This continues to strengthen its web services presence including content delivery for its growing online presence. We have to remember that Amazon is first and foremost a web services, content and web promotion company, and this is where it makes its money and share of market (share of eyeballs) are key to delivering enhanced expectations to its current and future customers.

Doug Garnett
BrainTrust

This announcement should be concerning. The added cost to move from two days to a one day commitment is incredible. My note last night about it is that the sniff test detects desperation.

And for the majority of Amazon orders, it’s not important — even to Prime members. So Amazon appears to be preparing themselves for classic Christensen disruption — loading services and expense on customers who don’t value the added service very much and leaving the opening for someone to undercut them in the market.

But what competitive response? The best response would be to continue to deliver excellent two-day service, a BOPIS option, the products customers care about, and good store experience.

Ken Wyker
Guest

This is evidence that Amazon is still relentlessly investing in staying ahead of their competition.

Instead of waiting until competitors close the gap on delivery timing, they are upping the ante and raising the bar so high that others might stop trying to compete on delivery timing. In the same way that Walmart leveraged their purchasing power and efficiencies to own the low price position, Amazon is leveraging their delivery logistics to own the fast delivery position.

Importantly, this move also helps mitigate the one downside that Amazon still has in competing against brick-and-mortar stores and that’s same-day pick up. A key driver of this move is likely Amazon’s desire to compete more directly against Walmart and their pickup in-store options.

Harley Feldman
BrainTrust

Of course Amazon’s march to one-day delivery will put pressure on its inline rivals.
The charge to the consumer for this express service will have an effect on the interest level for speed. As far as bundling in with Prime, Amazon customers will decide whether this speed is worth a Prime membership. But Amazon is also competing with retailers who have stores that can offer free pick up in store at the convenience of the consumer. Other than Whole Foods stores, Amazon cannot offer this convenience. I believe that eventually Amazon will need to decide whether it should have stores to compete at that level.

Andrew Blatherwick
BrainTrust
Amazon is driving the trend for shorter delivery lead time for consumers, but at what point is this self-defeating? The customers they are doing this for are already Prime customers so they are loyal. Do they really need to reduce delivery from two days to one day to keep them happy or is this just an Amazon marketing man’s dream? At what point does the cost of servicing this change outweigh the benefits? The cost of a time reduction of this sort is very high and if this can be done out of operating efficiencies then great, but I doubt this will cover the total cost increase. We have also heard in the past that as the delivery time reduces the out-of-stocks increase and if this is the result then customers will very quickly see through this and reject it. I am not convinced this is a customer-driven initiative but rather it is a marketing play. Do other retailers respond to this or simply accept that the service they offer is acceptable to their customers?… Read more »
Shep Hyken
BrainTrust

Amazon continues to raise the bar, and if any one can pull of one-day shipping, it will be Amazon. This is good for consumers – from all retailers. Since not every retailer is capable of matching the service, they will have to come up with more ways to add value. This is business as usual. The leader in any industry (or any part of the industry) forces the competition to match or offer competitive value.

Bill Hanifin
BrainTrust

As a competitive retailer to Amazon, I would not even try to match this latest change. The new standard being set by Amazon is good for Prime members, but could almost be seen as bait for competitors who destroy their margins by trying to keep pace.

I also wonder about the research that Amazon did behind the latest move. There is probably a finite list of the type of products customers may want (need?) with a 24-hour delivery. But most items purchased are not that time sensitive. I wonder if true demand was determined by Amazon in introducing this feature or was it more Amazon wanting to keep the pressure on market rivals?

There is a perception among consumers that faster is always better. I’m not sure that plays into the hands of any retailer over the long run.

Kevin Merritt
Guest

Many good points made here. What percent of sales/market does Amazon hope to gain from reducing shipping to one day from (already) loyal customers? Who will be more impacted — brick or click stores? The cost (and waste) associated with next day shipping can only be reduced so much because it is largely outsourced. Can 3rd party sellers keep up?

I struggle to see the net value here long term in terms of net profit. If they are attacking physical stores, then they are still a day late vs BOPIS. If they are competing against online, then this is really about incrementally growing Prime membership. As with anything Amazon, it is all about scale.

BTW, most of these are the same arguments preceded Prime 2-day, but then again … that was a gain of several days vs 24 hrs in logistics. Always exciting to see disruption in markets spawn new answers.

Liz Adamson
BrainTrust

Amazon set the standard for free shipping, then 2-day shipping. It’s no surprise that they are continuing to shorten shipping times, including offering same day in some metro areas. It’s one more feature they are using to delight their customers. Other retailers will need to find ways to compete, it doesn’t have to be shipping, it can be product selection, customer service, BOPIS, quality of products, etc. The one thing that is certain is that they will have to continue to innovate and evolve to stay in the game.

Ken Morris
BrainTrust
Ken Morris
Retail industry thought leader
6 months 19 days ago

Amazon has and will continue to shape customer expectations for not only delivery, but all of the other convenient shopping experiences they offer. Retailers have scrambled to match Amazon’s two-day delivery service levels and now they will work to shorten it to one-day service. However, not all orders are created equal, as consumers are not as impatient for some products and they are fine will longer delivery times, as long as they get exactly what they want and for the best price.

While one-day service will be a challenge for most retailers and most products, brands with a broad footprint of stores have the advantage of local inventory from their stores. Walmart is in the best position to meet more aggressive delivery service levels, especially when customer expectations increase to same-day delivery.

Kenneth Leung
BrainTrust

It would be difficult to replicate for other retailers who cannot offer the value of Prime membership that includes entertainment and other benefits. It pushes a lot of pressure on e-commerce competitors who has to fight Amazon set expectations. For stores base retailers they can leverage physical experiences to attract customers and switch the conversation from fast shipping.

kinshuk mishra
Guest
6 months 15 days ago
The first question is, is this offering a delight for the shopper? The obvious answer is yes. Especially for the prime shopper, who loves selection and convenience, one day delivery is a big positive. The second question is, should other retailers go after this feature. The answer is not easy. Amazon’s DNA is about faster delivery and it will keep upping the ante there. But that is not the DNA of every other retailer in town. And one day delivery is expensive. I personally don’t see much difference between a one day delivery and a two day delivery option — I would rather choose a delivery option when I will be at my apartment or choose a click-n-collect method, which is tough for Amazon to provide. I think retailers should see what matters more to their shopper and innovate there, instead of going after this new challenge. Do no knee-jerk announcements to match Amazon here. Having said that, they all need to invest in delivery to keep pace with the growing expectations and strategic actions… Read more »
Brett Rose
Guest

With regards to Amazon’s transition to one-day shipping, I believe the difference between one-day and two-day shipping is minimal and won’t completely overtake brick-and-mortar curbside pick-up. However, the transition is positive in that it will lure more customers and take Amazon closer to same-day, which is what the company would ultimately need to offer to fully compete with curbside.

More than the transition, competitors should pay attention to what Amazon’s latest $800 million investment will be used for in preparation. I predict a large portion will be allocated to further fortify Amazon’s infrastructure with internal couriers and Amazon Air and slowly reduce the use of third-party parcel systems like USPS to bring it all in-house to stop the need for outsourcing. Soon, we will see Amazon as a significant competitor to FedEx and UPS for non-Amazon related shipments as the company has done in the past with services such as AWS. This move will give them greater control and the ability to reduce their expenses and shipping times further.

wpDiscuz
Braintrust
"I think competitors should stay sharp on price, sell unique products, and try to do good karma things."
"There’s just no way right now to offer one-day shipping profitably without negative environmental impact and gross labor rights violations swept under the rug."
"Other retailers will need to find ways to compete, it doesn’t have to be shipping. It can be product selection, customer service, BOPIS, quality of products, etc."

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