Retailers trying to fend off Amazon could soon face a big new challenge from the online retail behemoth: free one-day delivery for all Prime members.
For years, Amazon Prime, which over half of US households are estimated to have a subscription to, has offered all of its members free two-day shipping for over 100m products. In select cities, one-day and even same-day delivery is available for millions of items.
Prime is often cited as a key driver of Amazon’s growth and for seemingly logical reason: research has found that free shipping and speed of delivery are of great importance to online shoppers. For some time, its free two-day delivery guarantee gave Amazon, which has invested billions of dollars over the
years in delivery infrastructure, an advantage over other retailers.
But other retailers have been making investments of their own to better compete with Amazon in this area and many now offer their own free two-day shipping options. In response, Amazon has been investing heavily — to the tune of $800m — to offer Prime members a free one-day delivery guarantee,
which the company last week revealed it is close to rolling out.
As Frank Poore, CEO and founder of CommerceHub, explained to Business Insider, “Amazon’s move to offer Prime members free, one-day shipping is a signal that the investments traditional retailers have made in improving their customer experience and supply chain to offer Prime-like shipping with no
cost or membership is impacting Amazon’s business.”
Amazon’s announcement sent shares of other major retailers, including Walmart and Target, tumbling, and it’s not hard to understand why investors in these firms were a bit spooked.
As Morgan Stanley analyst Brian Nowak told clients in a research note, “Just as Amazon did with Prime 2-day delivery 14 years ago, we see a broad-based 1-day shipping offering increasing consumer e-commerce expectations (essentially more people will get used to 1 day vs. 2 day shipping … and grow to expect 1-day shipping).”
Nowak believes that Amazon’s move will force numerous companies, including retailers and logistics firms, to make greater investments to catch up to the online retail giant.
But will they, and if so, to what extent?
In response to Amazon’s announcement, Target, the eighth-largest retailer in the US by sales, was quick to point out that it already has a number of ways to get purchases into customers’ hands quickly:
“Today, Target guests have numerous ways to shop same-day and receive their purchases within hours. We have a range of options that make shopping easy and convenient, including our in-store shopping experience and delivery from Shipt in nearly 250 markets. Our Drive Up service is at more than 1100 stores and Order Pickup services at all 1850 stores – both free, no-membership-required services.”
Walmart, the largest retailer in the US, issued its response to Amazon on Twitter and hinted at free oneday shipping that doesn’t require a subscription to a service like Prime:
One-day free shipping…without a membership fee. Now THAT would be groundbreaking. Stay tuned.
— Walmart (@Walmart) April 26, 2019
Time will tell just how much free one-day shipping affects consumer expectations and behavior but Amazon’s latest move might not be as menacing to major retailers with brick-and-mortar footprints as some observers believe because these companies are much better equipped to compete today, including through the use of their brick-and-mortar assets as part of click-and-collect offerings.
In some cases, these assets arguably even give them an edge over Amazon which, despite its acquisition of Whole Foods and partnerships with stores like 7-11, is a click-and-collect laggard.
But even if Morgan Stanley’s Nowak is right and Amazon’s one-day delivery push increases consumer expectations, the biggest losers will likely be small and mid-size retailers as well as the growing number of brands selling direct-to-consumer. Where it’s even possible, offering one-day delivery will be more expensive for these players and they also lack the brick-and-mortar footprints of big box retailers to counter Amazon with robust click-and-collect offerings.
This highlights the growing importance of strategic differentiation initiatives in companies’ efforts to counter Amazon. These include loyalty programs like the one Reebok just launched which, in addition to benefits such as free shipping, increasingly offer benefits, such as experiential rewards, that Amazon can’t match.
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