In the wake of record-breaking Q1 profits, Amazon revealed in an earnings call that it will make one-day shipping the default standard for Prime members, replacing its current two-day shipping offer. Brian Olsavsky, Senior VP and CFO at Amazon, confirmed the e-Commerce giant plans to invest $800 million during Q2 to improve warehouses and delivery infrastructure as part of the changes.
Amazon already offers one-day and two-hour shipping to Prime members for certain products at an additional cost. But the change would significantly expand the number of products and zip codes eligible for free one-day shipping, Olsavsky said. There is no timeline for the complete rollout.
The pressure is now on Amazon’s major competitors again, specifically Walmart and Target, as well as other rivals like Best Buy, to match Amazon’s shipping and fulfillment strategies with their own investments. None of these companies have been shy about investing significant capital in fulfillment in recent years — and this spending has certainly paid off — but the increased spending requirements certainly won’t help these companies’ short-term margins.
While competing retailers could follow suit in prioritizing one-day delivery, they may do better by continuing to optimize buy online/pick up in-store capabilities that Amazon simply can’t match. As many as 46% of online shoppers in the U.S. had collected at least one of their online orders from a brick-and-mortar store within the past 12 months, according to an April survey from Coresight Research. The survey specifically pointed out Walmart, Target and Best Buy as the three most popular retailers from which shoppers pick up online orders.
“The truth is many retailers can go one better: they can offer same-day pickup from stores,” said Neil Saunders, Managing Director at GlobalData Retail in a RetailWire discussion. “It’s more cost effective for them, and many consumers actually prefer it to delivery. Amazon is not so fortunate; it doesn’t have stores that can fulfill in this way, so it has to enhance its delivery options for core customers. That’s going to come with a hefty price tag, albeit one Amazon can afford.”
To reach its goals for one-day delivery, Amazon plans to continue using third-party services — FedEx, UPS and the U.S. Postal Service — in addition to its own delivery fleet.The change will first take place in the North American market, but is designed to expand globally across all countries that offer Prime memberships.
“One-day Prime may be Amazon’s Trojan Horse to build its third-party logistics network,” said Brian Nowak, Managing Director at Morgan Stanley in a research note. “We believe Amazon ground and Air logistics offerings are large and cost-effective enough versus existing logistics players to become real logistics competitors.”