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Blog postsMay 24, 2019

3 ways Amazon Prime one-day shipping will affect retailers and brands

It’s no longer a prediction. Amazon officially announced Prime one-day shipping as the new standard. Here’s what that means for everyone else.

Less than a month ago, Amazon announced Prime one-day shipping, but you already knew that. The announcement is still creating headlines, and we’ve already seen a number of competitors respond (looking at you, Walmart).

The news deserves the hype, but the move was also inevitable. Amazon already had the infrastructure to handle a one-day delivery promise in most major metropolitan areas. This is the logical next incarnation of a brand committed to one-upping itself and aggressively seeking out innovation.

In fact, we thought this move would come sooner than it did. In 2018, we predicted next-day delivery would become the new standard with Amazon leading the trend by making free, next-day delivery its baseline Prime delivery promise.

But what does this move mean for the rest of us? There are several implications of officially making the move to one-day shipping, including:

  1. The bar for fast, “free” delivery has been raised (discounting, of course, the $119 annual fee Amazon charges Prime members).
  2. We’re already facing a labor shortage in the supply chain industry, and now we’re seeing even Amazon incentivizing employees to open their own delivery businesses to accommodate increased order velocity.
  3. The arms race to create the best delivery promise possible is also highlighting the environmental impact initiatives like these have—encouraging retailers to address customers’ concerns and strive for heightened efficiency
  4. There’s no going back.

In light of the announcement and the implications, here are the 3 things retailers and brands must keep in mind going forward:

3 takeaways from Amazon’s one-day shipping reveal

1.) Retail will become even more competitive

It’s no secret that it’s a competitive climate for retailers and brands, and this latest move by Amazon will only exacerbate that. Amazon has spearheaded eCommerce—setting the standard for consumer expectations. It’s only a matter of time before others try and follow suit.

In fact, competitors are already nipping at Amazon’s heels. Within a month of the announcement, Walmart revealed it’s rolling out free, next-day shipping, too. Walmart’s offer, while free for everyone (no membership required) comes with a few caveats: It only applies on orders of $35 or more and is only offered on approximately 220,000 items—less than 1% of Amazon’s offering.

Target isn’t far behind either. The retailer already has a free, one-day delivery offer available to its REDcard holders and has the resources necessary to expand. They own Grand Junction, a delivery software company, and Shipt, a same-day delivery service that offers delivery in “nearly 250 markets.” Fortune reports that the service model is similar to Amazon Prime: “Shipt provides its free delivery services to Target consumers for $99 a year or $14 a month.” Target is also competing on convenience in another way: Expanding its car delivery service, Drive Up, where customers can order online to have their items delivered directly to their car.

Both Target and Walmart have the benefit of large retail footprints on their sides. Every retail location is strategically positioned near their target demographics; for example, 75% of the population lives within 10 miles of a Target.

Amazon, Walmart, and Target are three of the biggest retailers in North America. For most everyone else who lacks their resources and infrastructure, directly competing against delivery promise alone is going to be an uphill battle.

2.) The costs may outweigh the benefits

For retailers who are feeling the pressure to meet this new standard, supply chain experts recommend proceeding with caution. Sucharita Kodali, an eCommerce analyst at Forrester Research Inc warns that “a lot of ultrafast last-mile delivery solutions that consumers don’t even really ask for…ultimately are high-cost endeavors that don’t necessarily help a retailer’s bottom line.”

The reason? The most cost-effective way to provide fast, affordable delivery options to customers is by placing inventory close enough to customers to optimize the last mile for ground shipping. Retailers need to have their inventory management and allocation dialed in before they can even begin to think about attempting shorter delivery windows. The risk of falling short is high—few things disappoint customers more than a failed delivery promise. As Kodali points out it’s better to promise three-days “and hit it 99.9% of the time than to do two-day promise and do it 80% of the time, and tick off 20% of the customer base.”

The first question to keep top-of-mind is whether or not your customers even want faster delivery before you consider offering it. Depending on your customers, it might not impact their purchase decision at all. Take REI for example, in looking at its eCommerce sales, it found that it only needs to offer “four-day or less service” to keep its customers happy and coming back for more. And, the number one reason for shopping cart abandonment is that extra costs, like shipping fees, were too high, so customers might prefer cheaper delivery, even if it takes longer to arrive. In our 2019 FLEXE eCommerce Fulfillment Logistics survey, we found that customers prefer free shipping to fast shipping by a 2-to-1 margin.

For any retailer considering this move, it’s important to do a thorough analysis of what it will take to get you there, determine what (if any) benefits it will have for your business, and find the right solution providers to help you along the way.

3.) One-day shipping isn’t sustainable for businesses or the planet … yet

Even for a company like Amazon, it takes a LOT of resources to pull off free, one-day shipping. Amazon is investing $800 million into its warehouse and delivery infrastructure to enable this change. But even then, they still don’t have enough people to pull it off.

Amazon has gone as far as offering current employees $10k and 3-months salary to quit their jobs and start package delivery services in order to fulfill this new delivery promise. Can your business afford to do that? And can you provide guidance to your employees on how to do that?

Beyond the people-power needed to make one-day shipping available at such a large scale, it takes a lot of pilot-power too. Some pilots like Robert Kirchner fear that the increase in order volume and velocity will exhaust pilots. The “attrition of burned-out pilots is thinning the ranks of people qualified to fly the planes that enable one-day shipping in the first place.”

Kirchner also shared that "there are a lot of canceled flights, a lot of delayed flights, due to the pilot shortage and the staffing stressed operation, and that doesn't bode well for the future of this enterprise that Amazon is breaking ground on today."

From an environmental perspective, one-day shipping is anything but sustainable. Faster shipping often leads to customers making more individual, one-off purchases. This seems like no big deal when you’re hitting the “Buy” button, but it has major environmental costs.

According to the Institute for Transportation Studies at the University of California Davis’ Miguel Jaller, “Before, companies were able to consolidate, to optimize their distribution. Now, because some of them are offering really fast and rushed deliveries, that disintegrates the consolidation.”

The lack of consolidation results in huge increases in packaging waste, as well as a significant increase in the number of cars and trucks on the road, and soon, the number of planes in the sky.

Conclusion

We knew this was bound to happen. Amazon finally made the push to one-day shipping, but that doesn’t mean every retailer and brand can (or should) try to match them.

The future of retail hinges on meeting customer expectations, but not all expectations are about the speed of delivery. They’re also about the actual products you sell, your customer service, purchase channels, and value-add services.

In fact, 52% of millennials look for, and shop with, brands whose core values match their own, including things like environmental causes, and sustainable and transparent supply chains.

We don't want to assume, but it’s a safe bet most of our readers are Prime members (there are more than 100 million now). One thing we can all do as consumers, aside from relishing in the convenience of Amazon’s announcement, is be more conscientious about our buying habits. Can we bundle more of our purchases to cut down on packaging and delivery costs? Can we wait a couple more days if a retailers’ values align with our own?

One-day shipping may be the new standard, but it’s not a mandate. We, as consumers, still have the power to make an impact with our purchase decisions, we just have to make the choice to do it.