That decline is larger than the multichannel retailer’s overall 5.8% sales decline.
That’s according to a new projection from supply chain consultancy MWPVL.
Amazon.com Inc. may be able to offer same-day delivery to 31% of U.S. consumers by 2015. That’s the projection offered this week by Marc Wulfraat, president and founder of MWPVL, a global supply chain and logistics consulting firm, during a webinar hosted by Wells Fargo Securities.
Amazon’s Local Express same-day delivery program operates in 11 cities and metropolitan areas now; those areas command about 21% of the U.S. population. Those markets are New York, Chicago, Boston, Philadelphia, Washington, D.C., Phoenix, Seattle, Baltimore, Las Vegas, Indianapolis and the metro area of San Bernardino, CA, according to Amazon. “The concept of same-day delivery is quickly becoming a competitive requirement rather than a nice-to-have service in key markets such as Los Angeles, San Francisco and New York, where people are willing to pay a premium for this service,” Wulfraat says. He adds that in his view, Amazon wants to offer same-day delivery in the top 40 North American cities by population; that would give about half of U.S. consumers access to same-day delivery.
Amazon, No. 1 in the Internet Retailer 2013 Top 500 Guide, offered no immediate comment about the MWPVL projections. Earlier this week, Amazon CEO Jeff Bezos released his annual shareholder letter, in which he promised more “innovation” in fast deliveries, including with drones. The letter also said Amazon’s plan to expand Sunday deliveries “to a large portion of the U.S. population” this year, though Bezos did not specifically mention same-day deliveries. Amazon, through a deal with the U.S. Postal Service, in November began offering Sunday delivery in and around New York City and Los Angeles.
Amazon, Wulfraat says, will expand its Local Express same-day deliveries because it will help to make up for an important advantage it is losing: As more states apply sales taxes to Amazon and other e-commerce purchases, the web-only merchant can no longer count on its ability—de-facto or otherwise—to lure consumers with tax-free purchases. “With no sales-tax advantage, [Amazon] has to raise the service bar so high that no one can compete,” he says.
Consumers residing in the states in which Amazon collects sales tax comprise nearly 60% of the U.S. population, MWPVL says. The e-retailer supports the federal Marketplace Fairness Act, which would force midsized and larger online retailers to collect sales tax nationwide. That bill, passed by the Senate, remains before the U.S. House, where passage in its present form appears unlikely.
Expanding same-day delivery will challenge Amazon. “Same-day delivery is very hard to pull off, and very hard to pull off in a low-cost structure,” he says. Wulfraat projects that Amazon will need to build at least 11 non-food warehouses to offer same-day deliveries to those top 40 cities. Amazon says it operates more than 40 U.S. distribution centers and 96 globally.
Amazon’s online grocery service, AmazonFresh, might not play a large role in the e-retailer’s fulfillment future, Wulfraat says. Amazon says it tested the service for five years in Seattle before expanding it to Los Angeles and San Francisco. In his letter this week, Bezos gave no indication that Amazon will move quickly to brings its online grocery service to other cities: “We’ll continue our methodical approach—measuring and refining AmazonFresh—with the goal of bringing this incredible service to more cities over time,” he wrote.
Wulfraat anticipates a larger rollout of AmazonFresh could take five to 10 years. That’s because the online grocery business involves “massive volumes with miniscule margins [and a] large capital investment,” he says. “It could be a major drain on cash flow.” He acknowledges his view might be out of the step with some of the prevailing wisdom out there. “We are pessimistic about the grocery home delivery business for Amazon” and other retailers, he says.