Commentary: Amazon wants to control the shopping process end-to-end
In a move that will send shivers down the spines of the traditional delivery companies, Amazon has finally decided to try its hand at fulfillment.
The “Shipping With Amazon” service, which is slated to launch in Los Angeles over the next few weeks, will initially focus on the delivery of orders from Amazon and third-party suppliers which sell via its website. However, there is nothing to preclude the service being extended, and Amazon has said it is open to eventually making deliveries for other businesses.
Although Los Angeles is something of a trial, Amazon is likely to roll out the service to other U.S. cities later this year. In our view, this makes sense as there are many urban locations where Amazon’s order volume is so great it justifies taking fulfillment in-house.
In such areas, cutting out the middle-man is likely to save money and give Amazon more flexibility over schedules and delivery options. However, we believe this benefit will only accrue over time and as part of a broader strategy to integrate the delivery of food and non-food.
As much as it makes sense to do this in urban areas, it is unlikely that Amazon will make a move on trying to service the American hinterland. Order densities and volumes, along with long travel times between deliveries, in many parts of the country do not justify such an investment. Amazon may find technical solutions to this — such as self-driving vehicles — but this remains some way off.
The danger for the traditional delivery firms is twofold. Firstly, they are likely to lose business from Amazon; this will be slow at first but will accelerate as Amazon rolls out more of its own delivery services.
Secondly, if Amazon starts offering delivery to businesses, it will likely do this at a reduced rate. This leaves delivery firms with the unattractive prospect of losing share in their most lucrative and profitable markets, while at the same time having to offer a national service with all the expense of delivering to rural locations.
Amazon has already made moves into fulfillment, but to date, its efforts have mostly focused on bulk shipping. The current plans to deliver to consumers represent an intention to control the process of shopping end-to-end. Ultimately, this will give Amazon more power, control, flexibility, and profit.
Neil Saunders is managing director of GlobalData Retail.
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