When you shop online, what are your expectations? It’s a complicated question that has everything to do with context. But on average, when it comes to checking out online, is it cost of delivery, speed of delivery, the process it takes to even get to that point?
It’s easy to throw items into an online shopping cart and even easier to abandon them when you change your mind. For many online shopping purchases, the actual decision to buy something from a certain website comes down to post-purchase logistics: the time and cost of getting your items delivered.
In fact, it’s a well-known industry statistic that about 60% of online shopping carts are abandoned because of shipping costs. Additionally, another 23% are because total cost of purchase couldn’t be calculated up front, and another 18% are due to slow ship times.
Clearly, regardless of the context, delivery logistics matter.
Amazon has been the industry leader in not only improving delivery logistics, but also shaping our expectations as buyers. The Amazon Prime membership has made free, two-day shipping the industry standard.
This year, in our 2018 Retail and Logistics Trends report, we predict that next-day delivery will become the new standard for Amazon Prime.
Why NOW for next-day delivery?
At the end of 2017, there were more than 80 million Amazon Prime households in the United States. Additionally, in just one week during the holiday shopping season, more than 4 million people signed up for a Prime membership.
There are obvious advantages to being a Prime member. The biggest is access to thousands of products that can be delivered for free in two days or less.
Hitting every Prime member with two-day shipping on the thousands of Prime products alone is a complicated operation. Not to mention, the number of Prime products eligible for next- and same-day shipping grows every day. The idea that Amazon can then raise the delivery promise to next-day is a daunting feat, but not improbable.
What will make this a reality?
Amazon has made several big announcements, on top of its core competencies, that bring even faster delivery into focus. It’s no secret that Amazon has been experimenting with drones, underwater or flying fulfillment centers, and other futuristic technologies, but some very real events in the last 12 months, steep next-day delivery more in reality than sci-fi fantasy.
1 – Whole Foods included in Prime Now network
Just last week, Amazon announced it was going to add Whole Foods stores as Prime Now centers—promising delivery of groceries in less than two hours. Though only available in four markets now, it will undoubtedly expand the Whole Foods offer—exponentially growing its Prime Now network from 53 centers to include the 460 Whole Foods footprint. And that’s just grocery.
But “just grocery” is key to Amazon’s strategy. Online grocery shopping is expected to grow significantly in 2018, from 22% in 2017 to 36% in 2018, and more than half of those shoppers are expected to try Prime Now.
2 – Amazon's FBA Onsite program
This month, Amazon released its members-only program, FBA Onsite, that invites non-Amazon 3PLs and warehouses to become certified for Prime. We’re well-versed in collaborative logistics around here, and welcome Amazon to the party. What’s clear from this announcement is that even with is 200+ locations, it’s running out of room to meet demand.
This announcement could denote that Amazon is struggling to keep up with demand, and that it’s looking to offset the billions of dollars worth of logistics costs it absorbs each year to provide fast, free delivery.
3 – “Shipping with Amazon" to contend with FedEx and UPS
Amazon has been working on its own shipping service and it’s set to go live in Los Angeles in the coming weeks. Implementing its own services, could save Amazon more than $1 billion a year—translating to average savings of $3/delivery.
Shipping with Amazon (SWA) will include multiple modes of delivery, including its own planes, trains, and automobiles. Ok, probably not the trains. But it will include an Uber-like delivery network and drones.
The impact on carriers like FedEx, UPS, DHL will be slow at first, but nothing at Amazon takes too long to accelerate. It’s unclear if Amazon will ever be fully autonomous, especially to regions outside its primary demands, but this is the first step in creating a closed-loop network and being able to control the speed and cost of delivery to Amazon customers.
What about everyone else?
It’s a fair question. It’s clear Amazon isn’t slowing down. Its continued disruption of retail—both eCommerce and (now) physical—as well as its push into hosting services (AWS), delivery services, and warehouse specifications with FBA Onsite demonstrates its willingness to push boundaries and redefine standards.
Retailers and warehouse operators alike must innovate to keep up—particularly those that would prefer to avoid selling through Amazon.
Retailers and brands are faced with growing their distribution networks to meet demand with faster, more affordable delivery. Last year, we saw Walmart acquire Parcel to speed delivery in New York City, and Target acquire Grand Junction to offer faster delivery with a network of more than 700 carriers that connect to the platform.
The warehousing market is tighter than it has ever been, but faster delivery means setting up fulfillment networks closer to demand. In New York City for example, developers are building up, not out. Last month, two different teams released designs that feature multi-story warehousesin Brooklyn and the Bronx.
Competing on last-mile delivery is paramount to meeting today’s customer expectations. Amazon is applying pressure, and it’s time to respond. Legacy retailers like Walmart and Target turning to new technologies to improve delivery proves how valuable it is to create a competitive model.
What’s less obvious is that fast, affordable delivery promises are available to the other 99% of brands that aren’t in the top ten. Retailers and brands of all shapes and sizes can build strategic partnerships and implement solutions that outsource logistics and warehousing operations.
New logistics technologies and business models for warehousing, inventory management, and transportation are creating an unprecedented amount of agility and flexibility into a traditionally linear function. In fact, that’s part of our next prediction: how acquisitions and strategic partnerships will drive more growth in 2018. Stay tuned.