Amazon has been challenging established industries since its debut as an online bookstore in 1994. The e-commerce giant has drastically disrupted brick-and-mortar retail.
Traditional shipping companies struggled to keep up too: Deliveries to residences, which were once a fraction of their business, started increasing year after year as a direct result of the impact of e-commerce growth.
The e-commerce giant has drastically disrupted brick-and-mortar retail. Traditional shipping companies struggled to keep up too: Deliveries to residences, which were once a fraction of their business, started increasing year after year as a direct result of the impact of e-commerce growth.
Then, in 2005, Amazon Prime was introduced. The free two-day shipping that Prime membership offered started out as a luxury, but the service grew so dramatically that it became the norm. More than 80 million Americans were Prime customers in 2014; today, nearly one in five customers is unwilling to wait longer than two days for a package.
Today, retailers are stuck between customers’ expectations and carriers’ offerings. Customers expect fast, low-cost shipping. Carriers laden with Amazon packages are less eager to compete for small clients than they were a decade ago. Plus, they can charge more money for every aspect of shipping that the online retailer, Amazon has normalized: Residential delivery, holiday delivery, large packages and long distances.
At the same time, Amazon’s experiments with parcel lockers, drones and same-day delivery are forcing both retailers and traditional shipping companies to evolve faster than ever.
Disrupting E-Commerce Company Expectations
Amazon’s power over e-commerce business has increased every year, as customers can continually buy more and more of what they need on the website. Americans have quickly gotten used to having items delivered to their doors — everything from holiday gifts to furniture to groceries.
The e-commerce market keeps growing. The average American ordered nearly 15 parcels online in 2016, up from fewer than 10 four years earlier, according to a study from AlixPartners LLP. That means every year, traditional shipping companies have to move more and more small parcels for residential customers.
At the same time, customers expect faster and faster service. In 2012, just 4 percent of respondents to the AlixPartners LLP survey said the maximum amount of time they were willing to wait for packages was two days, as promised by Amazon Prime. By 2016, it had jumped to 18 percent.
Kenny Pate, vice president of product management, global e-commerce at Pitney Bowes, wrote in a 2017 Forbes Insights report: “Amazon is changing the way that distribution is done. Four years ago, if you bought something on Amazon, your expectation was that you’d get it in three to five days. Now the expectation is two, or less. They’ve closed the delivery gap — and now that same customer expectation extends beyond Amazon to everyone else.”
On the Horizon: More Efficient Deliveries, Increased Demand for Same-Day Shipping
Amazon’s supply chain continues to push to move more products even faster. AmazonFresh offers groceries, including perishable foods. Amazon Restaurants brings takeout from local cafes to customers’ doors. Digital services like the Kindle and Prime Video have eliminated some packages altogether.
In several cities, Amazon is rolling out parcel lockers — secure storage containers in apartment buildings or neighborhoods where delivery drivers can leave packages and customers can pick them up. Users have custom unlocking codes, which Amazon says will reduce package theft. But they could also increase delivery efficiency: If drivers stop at one parcel locker instead of 10 doorsteps, they can deliver 10 times as many packages.
Next, Amazon is piloting delivery by drone in the United Kingdom. Customers order items online, and small aircraft carry them from warehouses to their doors within 30 minutes of their order. Over time, two-hour shipping may replace two-day shipping as a shipping company norm. Additionally, drones could replace drivers, cutting carriers’ labor costs but eliminating full-time employee jobs.
Finally, in 2018, Amazon plans to take Seller Flex nationwide. Seller Flex allows Amazon’s third-party sellers to have items picked up and delivered directly to customers, without passing through company warehouses.
Amazon has said the service will make more items eligible for Prime and will still rely on UPS, FedEx, USPS and other traditional carriers — but industry experts note that a company-owned delivery service seems like a logical next step.
How Can Retailers Compete While Managing Shipping Costs?
Whether retailers should sell on Amazon is a complicated question, and each company has to find its own solution. This might include researching other e-commerce platforms. But every business now has to meet customers’ high expectations for online shopping while maintaining its bottom line.
Some retailers with broad geographic range have cut costs with “Ship From Store” programs. By sending packages from brick-and-mortar stores to customers in the same regions, companies reduce travel distances and shipping costs while customers still get convenient doorstep service.
Similarly, “Pick-Up In Store” offerings ask customers to drive to nearby stores to collect their purchases. Even if only a few customers choose pick-up over delivery, the company’s shipping costs shrinks — and customers may spend a little more while at the store.
Other retailers have tried working with multiple carriers to meet different needs. Regional carriers might offer fast service to nearby customers at lower rates. The U.S. Postal Service’s flat rates can reduce the cost of long-distance shipping. Contracts with multiple national carriers can save costs, too, depending on your company’s needs.
If you’re considering a multi-carrier strategy, make sure your company is ready to manage it.
Amazon has changed retail and shipping irreversibly. Whether the company disrupts grocery, transportation or another market next, it’s safe to say Amazon will keep experimenting with delivery. Retailers need to do the same.