Amazon has transformed retail by changing what it means to buy online. And, it's not just about their vast website and buying algorithms. It’s the expectation they’ve created for consumers about delivery times and cost. Free 2-day shipping is the new normal – but even that’s not enough anymore.
A few years ago, a delivery of a week or more was acceptable for any online purchase, but things have changed quickly. According to a 2016 study conducted by Deloitte, only 42% of respondents considered 3-4 day shipping to be ‘fast’ (as compared to 63% the prior year). The majority (83%) of shoppers characterized ‘fast’ delivery as two days or less.
In that time, Amazon raised the stakes with Prime and created the expectation (and reality) of free 2-day delivery. They’ve even begun doing something the USPS, UPS, and FedEx cannot - Sunday delivery. Interestingly, it turns out all this was not the end game. The goal is now same-day delivery and it represents the Holy Grail for online retailers, especially as they try to optimize their brick and mortar assets with ship-from-store capabilities.
The Real Competition for eCommerce is Consumer Instant Gratification
Amazon has always known their real competition is not other online stores or even other companies that are ‘better’ at retail. Yes, product selection and competitive prices on Amazon are important, but what they are really competing against is the immediate gratification a shopper wants. It’s something consumers can only get by making in-store purchases – now.
The problem for other retailers is that matching Amazon Prime 2-day delivery to anywhere in the U.S. is going to be hard – and costly. In 2016, Amazon’s outbound shipping costs exceeded $17b while their shipping revenue was $7b. So far, Wall Street has allowed Amazon to offer Prime shipping as a loss leader and a competitive weapon. The same-day delivery challenge makes it exponentially harder.
New ‘Last-Mile’ Delivery Solutions
Despite the costs, retailers are scrambling to meet the demand for same-day shipping, as are UPS, FedEx, and the USPS. The answer for how other retailers can keep up with Amazon, if there is one, will likely come by leveraging the new breed of crowd-sourced delivery options – like Deliv, Uber Freight, Roadie, or other similar companies offering ‘last-mile’ delivery solutions.
These solutions operate by leveraging individuals’ willingness to get paid for making local deliveries quickly and cost-effectively using their own cars or trucks. Logically, the potential is there for these companies to disrupt small parcel delivery by providing local, on-demand delivery capacity for retailers. One need only look at how Uber disrupted the taxi industry and Airbnb's effect on the hotel industry.
Get Your Inventory Closer to Your Customer
To think a local delivery network is the only hurdle for competing with same-day Amazon delivery misses something important. Amazon has also built a network of fulfillment centers that put products close enough to customers so that same-day delivery is possible. Few, only the largest brick and mortar retailers, can match this distribution footprint. None of the pure eCommerce merchants can.
This means companies who will successfully compete with Amazon will need to create new inventory networks to get closer to customers. Some retailers are already shipping online orders from local stores, as opposed to regional fulfillment centers.
It’s also possible that some companies will create partnership agreements that will, in a sense, ‘share’ inventory, enabling them to more cost-effectively keep inventory nearer to customers. Some may also avoid trying to compete with Amazon everywhere, and just focus on local markets and regions where they have the strongest presence.
Shipping and warehousing efficiencies are about volume and scale. Same-day delivery is about having inventory close to the customer, and someone to deliver it to them. Crowd-sourcing delivery is a great solution for retailers looking to compete with Amazon to find that delivery capacity – but the question remains on how to cost-effectively store products close enough to customers and make same-day delivery possible. Read more about reducing shopping cart abandonment with accurate pricing and delivery options here.
eCommerce businesses need to meet the challenge of same-day delivery through decision support and execution of these services. As the world of eCommerce delivery becomes more complex, controlling the cost of free shipping while addressing consumer demand for premium delivery has never been more important.