Amazon Same-Day Delivery? Stores Not The Target

This week saw a wide range of media reports stating that Amazon, thanks to its recent state tax deals, may offer shoppers same-day delivery and that this, as one Slate headline said, "will destroy local retail." Just a few problems with all of this.

First, the tax deals are years in the making and have little to do with this. Second, no, Amazon offering same-day delivery won't mean the end for almost any retailers. How do we know? That's the third point: Amazon has already been delivering products same day—for more than three years.

There are a lot of interesting twists involved in this same-day delivery strategy—including some unusual ways one Amazon insider said the master site could deploy it—but there's a bizarre trend here. Amazon seems to be the retail bogeyman, blamed for a wide range of self-inflicted brick-and-mortar issues, whether it's the LSD-level of twisted reality in showrooming paranoia, the "Amazon is going to start opening physical stores everywhere" strangeness from Amazon Lockers or the general craziness about various Amazon Patents, including one for gift acceptance and a deservedly eye-brow-raising one on religion-guessing. And let's not forget the Kiva deal, where some physical chains worried about warehouse robots phoning home to the Amazon mothership.

Interestingly enough, Amazon is quite likely the retailer that focuses less on its competition, which is annoyingly leader-like of it. In short, the likes of Walmart, Target, Walgreens and Macy's strategically react a lot more to Amazon than Amazon does to them.

I only mention that to put into context the strange Armageddon-like reaction to the possibility of Amazon doing same-day shipments, which is so terrifying and destructive a move that it's been happening for three years and few noticed.

Back in 2009, Amazon quietly—never announcing it—started offering same-day shipments to urban shoppers who used the $79/year Amazon Prime service. Amazon has been periodically adding new cities and, today, same-day delivery is offered to shoppers in 10 metro areas: Baltimore, Boston, Chicago, Indianapolis, Las Vegas, New York, Philadelphia, Phoenix, Seattle and Washington, D.C. Those Amazon Prime customers—who get two-day delivery for free and overnight delivery for $3.99—are charged $8.99 for same-day delivery (if it's a giftcard being delivered, it's only $3.99).

The service comes with some key limitations. First, not all products are eligible for same-day delivery. And the cut-off times are pretty severe.

The article that started this editorial flurry was a Financial Times piece that ran July 10. That story set the tone, arguing that same-day delivery from Amazon "will erode one of the last advantages of the physical store: instant gratification. If someone needs a pack of nappies, a mobile phone charger or bottle of cough medicine this evening, the only way to get them immediately is to go to a local store such as Walmart, Best Buy or Target, which all helped fund the anti-Amazon lobbying. But if Amazon can deliver to work or home in three or four hours—and at little or no shipping cost to the consumer—then why bother with the store?"

Contrast that with the Amazon same-day delivery reality. In Chicago and Indianapolis, to get same-day delivery orders must be placed by 7:00 AM and they are not promised to arrive before 8:00 PM. So much for instant gratification and having no incentive to go to a brick-and-mortar when you run out of nappies (a.k.a., diapers).The cutoff times in the other cities range from 8:30 AM in the Big Apple to 10:00 AM in the City of Brotherly Love to 11:00 AM in Baltimore and Boston, with the absolute latest being noon and that's only for Amazon's mothership neighbors in Seattle.

The big question, though, is where is Amazon planning to go with this? Amazon's Prime shoppers, of course, are a trivial percentage of its customer base. Will Amazon expand this offering nationally, for all customers?

Let's look at the restrictions and what is likely to happen.

  • Restrictions On Eligible Products
    Amazon has from the very beginning understood that its sales-tax haven would be a limited-time advantage. That never meant it would hold back on any legal devices the company could deploy to stretch it out as long as possible, including our personal favorite when it posted the most embarrassing movie and book purchases it could find when fighting North Carolina tax-collection efforts in 2010.

    Now that it's preparing to charge sales tax in just about every state, Amazon is free to aggressively open distribution centers (DCs) anywhere it wants. Those DCs will not only add new areas for same-day delivery but they'll also enable Amazon to radically expand which products are eligible.

    "If we're building a million square feet in LA, there's a lot of product in there," said one Amazon-ite. "In Phoenix, it's 4 million square feet of fulfillment space plus."

  • Restrictions On Pricing
    Like everything else in retail, pricing decisions can truly dictate purchases. If two-day shipments are low cost or free—and don't forget that more DCs will likely reduce three-day and two-day shipments in many areas to two-day and next-day, at no additional customer cost—how many customers will cough up extra money for next day? This really begs the question of how many will pay an extra $9. Given that Amazon Prime fees subsidize those costs, it might be a lot more, thereby reducing the incentive.

    But one Amazon source suggested a more likely scenario would be to offer same-day delivery for free, with possible restrictions on order size. Suddenly, that takes on much more power. But not against physical stores—against other E-Commerce sites.

    Amazon is nothing if not dependent on some very sophisticated homegrown apps. Done intelligently, costs on local same-day shipments could be tiny, potentially lower than the cost of mailing orders in bulk. If the system notes that it is preparing to ship 56 packages to the same huge apartment building in Manhattan or 197 boxes to the same office building in Los Angeles, couldn't a local truck do this for a lot less?

    It's lost on no one that once tax issues are gone, the biggest price differentiator between E-Commerce and physical stores is delivery fees. Remove them, and Amazon has made up for the loss of the tax advantage many times over.

    By the way, Amazon is not only thinking about all of this, but it's amused by where such a strategy could go. The company pointed us to a truly funny video that has Amazon going beyond same-day delivery, into yesterday delivery. Amazon neither made the video nor denied that it's exploring this time-travel approach. The company was kidding. I think.