Editor’s Note: This article is an excerpt from one of RetailWire’s recent online discussions. Each business morning on RetailWire.com, retail industry executives get plugged in to the latest news and issues with key insights from a panel of retail industry experts.
On July 10, 2012, The Financial Times reported that the reason Amazon is setting up scores of distribution centers across the U.S. is so it can start making same-day deliveries.
Amazon hasn’t discussed same-store delivery, and told the San Francisco Chronicle it doesn’t comment on “rumors and speculation.”
The possible move would amount to a major shift for the online giant, which has long sought to plant its massive distribution centers in tax-friendly states to avoid paying sales tax. Indeed, [Amazon’s move] may be prompted by several states passing laws closing the tax-free loophole in recent years. Amazon has also surprised many by reaching agreements with several states, and some now see this as part of its warehouse proliferation goal.
Amazon already has been touting a same-day delivery option in select cities using local couriers.
The potential of widespread, reasonably-priced, same-day delivery sparked a debate on whether Amazon is better off with the price-advantage it has long maintained through its tax status, or being able to provide quicker delivery and convenience to customers.
Retail consultant Helen Bulwik told the Chronicle that she believes such a strategy from Amazon would represent a more significant threat to other online competitors than to brick-and-mortar. She adds, “People still want to shop, they still want to go into a store, and they will continue to do that.”
Bulwik also said customers generally don’t mind waiting for online purchases as much as initially thought, with average e-Commerce delivery times actually increasing over the past few years.
On the other hand, a CNN article points to a Citigroup survey earlier this year that stated 52% of Amazon shoppers surveyed, currently not paying sales tax, said they would be less likely to buy goods on the site if they had to pay that additional amount.
Still, others see Amazon’s ability to accomplish same-day delivery as a game-changer. Colin Sebastian, analyst with Baird Equity Research, told the Chronicle, “Once they have the facility in your backyard and trucks operating in your area, they become more competitive.”
In a column on Slate.com, Farhad Manjoo proclaimed such a move would “destroy local retail.” While brick-and-mortar has counted on instant gratification to lure customers, same-day delivery from Amazon “offers gratification that’s even more instant: order something in the morning and get it later in the day, without doing anything else. Why would you shop anywhere else?”
Reader Commentary Reveals The Impact Of Same-Day Delivery
In the comments following Ryan’s article, retail industry experts shared their opinions on Amazon’s rumored business model adjustments. While several commentators found these alterations to be beneficial to the eTailer’s stance in the market, others indicated that increased prices and taxes could damage overall brand image and loyalty. Some of these comments include:
Several of Amazon’s multichannel competitors, including Macy’s and Walmart, are adopting strategies such as “buy online, pick up in-store,” or using stores as mini-distribution centers to ensure faster delivery times, according to Richard Seesel, Principal of Retailing In Focus, LLC.
“Top of FormAmazon needs to react to these kinds of developments to sustain its mastery of logistics as one of its key strengths, along with price and assortments,” Seesel said. “To make this an achievable goal, Amazon is reaching deals with various state governments, including New Jersey, to open new distribution centers. This will enhance states’ tax revenues at the same time that Amazon expands its supply chain advantage.”
Consumers today are relying more on speed and instant gratification, Gene Hoffman, President and CEO of Corporate Strategies International explained. “Same-day deliveries fit into that mindset and that would be a plus for Amazon,” he said. “However, quick deliveries have a potential enemy, and that is paying tax for online orders after not having to do so for years. We are living in an era when tax increases and reductions have become part of our daily bombardments. Speedy delivery would seem to overcome paying sales taxes, and the commercial river of Amazon would roll onward.”
Max Goldberg, Founding Partner of The Radical Clarity Group, also indicated the benefits of same-day delivery for Amazon. “Not only will this development allow the company to more effectively compete with local merchants, it would provide a significant point of differentiation from other online merchants,” Goldberg explained. “Sales tax is coming to the web. Amazon was smart to get in front of this with states and look for a new and better way to compete.”
“I do think the increased prices will set Amazon back,” said Lisa Bradner, Chief Strategy Officer of Geomentum/Shopper Sciences. “They are a price leader and have used that to disrupt retail. As costs goes up, the ability to see the merchandise and touch it may start to outweigh the convenience of ordering online.”
Amazon may continue to do well in categories, such as books, where seeing and touching the product is not all that important, Bradner added, but “in categories such as apparel, it’s going to be a much closer fight as retailers adopt virtual dressing room technologies and recommendation engines.”