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Amazon’s Same-Day Delivery Will Shake Up Retail

I recently went to a local Staples store to purchase a cartridge for my HP laser printer. The cost was about US$80, including sales tax. While I was driving home, it suddenly dawned on me that I should have ordered the cartridge from Amazon at a much lower price.

As soon as I arrived home, I searched the Amazon site for suitable alternatives to the costly cartridge that I had just purchased. Sure enough, I was able to buy two laser printer cartridges for a total of $16. In order to take advantage of Amazon’s free shipping, I increased my order a tad by buying two boxes of copy paper. Total cost, about $25. Needless to say, I returned my costly Staples purchase the next day.

The point is, if Amazon is currently so competitive, what will happen to the retail marketplace when it becomes even more competitive when same-day delivery becomes ubiquitous?

Same-Day Delivery and Its Ramifications

The current Amazon model, as I see it, is to build warehouses — distribution centers — in as many states as practicable in order to have their merchandise as close as possible to the end user, the buyer. This change in direction for Amazon puts additional pressure on the big-box stores and other retailers. Just think how easy it was for me to return my printer cartridge to Staples and order it from Amazon.

I realize that some people still want to see and feel a product before they buy it. Yet, online retail sales have skyrocketed to such an extent because more and more people are becoming comfortable with ordering certain merchandise from the comfort of their homes with a virtual click or two.

So many of the products that Staples, Walmart and other retailers sell are so-called fungible goods, interchangeable products. With that in mind, it seems that a large portion of the merchandise that these retail behemoths sell can be purchased online. My guess is that we’ll see more and more of the large retailers increasing their online exposure and not stressing their bricks and mortar presence as much.

Large Retailers at a Disadvantage

What’s a large retailer to do? They are already highly invested in real estate, including warehouses that supply their stores. If they are to successfully compete with Amazon, they would likely have to open additional warehouses in order to efficiently supply their online customers. Even if they didn’t have to build additional warehouses, they will still be at a disadvantage to Amazon because Amazon needs no actual retail presence. They’re doing just fine with their virtual presence — their online presence.

We’ve probably seen images of Amazon employees plying around large warehouses on tricycles. They travel miles each day, picking out various products and tossing them into their large baskets so that they can fill orders. The products are brought by them to the shipping department, which then concerns itself with the addressing, packaging and shipping.

But, not anymore! In March of 2012, Amazon announced that it was purchasing Kiva Systems, a specialized maker of robots that services warehouses. The purchase price was $775 million in cash.

One can just imagine how Amazon’s future warehouses will look. Robots going from bin to bin picking out and picking up merchandise and carrying that merchandise to the shipping department. This should ultimately bring down Amazon’s cost of shipping in a noticeable way. Just think, robots don’t receive any fringe benefits, they receive no vacation pay, Amazon doesn’t have to pay workers’ compensation on them. We can go on and on with this analysis. Suffice it to say, not only should Amazon’s shipping costs be noticeably reduced by these robots, but perhaps the speed of shipping will go up, assuming that the robots can move along faster than someone on a tricycle.

Computerized Robots

I have no doubt that the robots in the future Amazon warehouses will be totally plugged into Amazon’s formidable computer infrastructure. This will create instant tracking of an order throughout the factory, assuming that Amazon doesn’t already have that capacity with its present workforce.

Perhaps the Amazon robots’ job description will go beyond what Dave Clark, Amazon’s vice president of global customer fulfillment described when he said: “Amazon has long used automation in its fulfillment centers, and Kiva’s technology is another way to improve productivity by bringing the products directly to employees to pick, pack and stow.” Clark also said that “Kiva shares our passion for invention.”

My guess is that the robots will be doing much more than bringing the products directly to employees to pick, pack and stow. I don’t see why they couldn’t do much more, giving the state of robotics in the United States today.

What’s a Retailer to Do?

I wish I had the answer to that question. I’m certainly not predicting the imminent demise of the large retailers. They have no doubt been thinking about what I am presently pondering. The hard fact is that we are now pretty far down the road to an online economy. More and more people realize that Amazon’s prices are hard to beat.

When they can couple Amazon’s prices with same-day delivery, would you be willing to pay a little more for that same-day delivery and stay in the comfort of your home and, with just a few clicks, order merchandise to be delivered that very day?

It’s like having a genie in a bottle, rubbing the bottle and saying, today I want …

Good luck!

Theodore F. di Stefano is a founder and managing partner at Capital Source Partners, which provides a wide range of investment banking services to the small and medium-sized business. He is also a frequent speaker to business groups on financial and corporate governance matters. He can be contacted at [email protected]. Follow Theodore F. di Stefano on Twitter.

3 Comments

  • Yes but! Do we really need cheaper and cheaper prices from less companies like Amazon & Walmart so that we consume more for less and destroy any chances at a fair living wage, healthy local small businesses and a sustainable ecological way of living?

    I don’t think so. I think this is headed in the wrong direction.

    We should rebel against large multinational corporations chasing the cheapest wages, the lowest prices and the most lax regulations so that they don’t have to worry about polluting and let’s not forget the easiest way to hide profits and not pay taxes.

    What we need are small local Cooperative corporations whose focus is high employment to keep their communities healthy.

    • why does it make a difference?

      if a person can get something cheaper its money saved in his/ her pocket ,why AM i concerned if someone else is making a living?

      dont make no sense

      charity begins at home!

  • There are many ways that traditional retailers can develop a more level playing field (albeit not an edge), for one, push more manufacturers to Minimum Advertised Pricing for the brands they heavily compete on. This will keep pricing level as long as it is enforced. If they can successfully accomplish this on staple items and push in store promotions which most manufacturers with Minimum Advertised Pricing allow for traditional retailers over online this could provide incentive for higher in store conversions, assuming also the issue of sales tax collection is resolved for all.

    Every retailer knows that a larger and larger percentage of their customers are using price comparison apps such as the Amazons app which allows for bar-code scanning. How many traditional retailers provide this to their customers?

    Traditional retailers need to move away from order online for in store pickup and simply ship to the product to the customer through a distribution network that allows them the best cost of quick delivery. Regional distribution centers allow for cheap 1 to 2 day delivery via standard ground, customers that receive product next day for free or at a discounted rate as Amazon provides for the majority of their shipments will be just as excited as paying a premium for same day delivery.

    Lastly, retailers typically do not build close enough relationships with direct manufacturers to ensure the best delivered cost of off brand or private label items. Retailers are in the business of bringing product to market, not having their hand in the manufacturing process so best price may not always be the case when a true cost of product is not known. Before we started our own product driven e-commerce business I had the opportunity to call on Wal-Mart as a sales person, and it is very evident that in its effort to provide the best price for its customers, they understood the importance of knowing net cost of manufacturing and bringing the product to market, hence their ability to provide low cost private label or off brand items which gave them the ability to both carry brand name items and compete against them in their own stores with essentially their own product.

    Brick & mortar retailers have been slow to find synergies between their stores and retail presence, and I suspect we will see more and more of the category killers such as Best Buy, Petsmart, Office Max completely revamp or die, just look at book stores.

    There are three main components. 1. & 2. It shouldn’t cost the customer any more to receive the item at home as it does for them to drive to a store and delivery must be quick for staple items. 3. The cost for these items must be competitive and a store should have a lower priced private label or off brand product.

    If you do not produce proprietary product, you simply carry the same goods as everyone else, and if pricing levels are of no concern, the winner is the company with the lowest price when it comes to e-commerce, the first search is who has it, the next search is who has it cheaper…..

    ECE

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