In its second-largest acquisition, Amazon buys the company for $970 million.
Amazon.com Inc. last month announced a shipping option that offers same-day delivery on items ranging from gourmet foods to hardware in seven major cities. The new delivery service solves the No. 1 reason people don’t shop online—because they want something immediately, analysts say.
In what some analysts see as a challenge to bricks-and-mortar retailers, Amazon.com Inc. announced last month a new shipping option that offers same-day delivery on items ranging from gourmet foods to hardware in seven major cities-Baltimore, Boston, Las Vegas, New York, Philadelphia, Seattle and Washington, D.C. The leading online retailer also said it plans to extend the program to Chicago, Indianapolis and Phoenix in coming months.
To qualify for same-day delivery in New York and Philadelphia, orders must be placed by 10 a.m.; in Boston, Washington and Baltimore the cutoff is 10:30 a.m.; and in Seattle, Amazon’s headquarters, shoppers can request same-day delivery until 1 p.m.
Consumers enrolled in Amazon Prime, Amazon’s shipping membership program, pay $5.99 for same day delivery. For other customers, shipping rates range in price from $14.49 to $18.99. Amazon also said it will expand Saturday delivery to allow items ordered before the cut-off time on Thursday using two-day shipping to be delivered on Saturday instead of Monday.
The move further pits Amazon against bricks-and-mortar stores, says Sucharita Mulpuru, an e-commerce analyst at research and consulting firm Forrester Research Inc. “When you look at why people choose not to purchase something online, even if they research it online, the No. 1 reason is because they want something immediately,” Mulpuru says. “This solves that problem.”
The faster shipping option will have more impact on Amazon’s ability to compete with stores than with other online retailers, Mulpuru contends, as web shoppers accustomed to shopping at Amazon already do much of their online shopping there.
“For some customers it may make it more compelling to buy at Amazon, but for most people, if you’re inclined to buy at Amazon, you’re already doing so,” she says. “It’s already cheaper and offers more shipping options. In the few cases where Amazon loses, it’s generally because they aren’t stocking something.”
Amazon could be making the move as a precursor to ramping up its fledgling grocery business, says Paula Rosenblum, managing partner of research and consulting firm Retail Systems Research LLC. “It’s kind of a profound step,” Rosenblum says, “because that business requires instant gratification and, with this, you’re getting that instant gratification, which is very powerful.”
Amazon’s grocery service, Amazon Fresh, launched in 2007 and is currently only available in parts of the Seattle area. But the world’s largest online retailer has hinted that it’s looking to invest more in the program, and Amazon announced Sept. 25 it would expand the business to the entire Seattle metropolitan area.
Can others compete?
Only a handful of large retailers could try to match Amazon’s offer, says Curt Barry, president of F. Curtis Barry & Co., a consulting firm specializing in e-retailing logistics. “It’s probably too big an endeavor for most companies, but there are some, like Macy’s, that could pull it off,” he says.
However, both Barry and Rosenblum doubt rivals will introduce similar services. Instead, Rosenblum believes rivals will try to woo consumers in other ways, such as with free shipping or lower prices.
Fast delivery can be expensive, and Amazon could lose money unless it gets large volumes of same-day orders in each of the cities where the service is offered, Rosenblum says. “Retailers have to hope that they won’t make money on it, which isn’t an unrealistic hope,” she says
An Amazon spokeswoman declined to discuss either the start-up costs or logistics for the delivery program, but notes that the retailer is working with delivery and distribution service providers Dynamex Inc. and the A-1 Delivery Service Inc. network.
Projecting the potential for setbacks in an ambitious delivery service like this, Rosenblum points to a free shipping and free return program Pottery Barn introduced about 10 years ago. “What people would do is order two sofas,” she says. “They’d decide which they liked and send the other back with the delivery truck. And that expense kills you.”