Two decades later, Bezos told shareholders: “Day Two is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day One.”
Day One thinking has now led Amazon to push for one-day shipping as the new standard. And it has everybody up in arms — with retail investors, analysts and union leaders reacting. Some see something more in the works than just faster deliveries.
Amazon said Thursday afternoon that it was spending $800 million this quarter to move toward one-day shipping in its Prime program. Prime had previously cemented two-day shipping as the standard for consumers, sorely challenging competitors that already have slim profit margins and don’t have Amazon’s billions to keep up.
But that goes toward another of Bezos’ favorite sayings: “Your margin is my opportunity.”
Investors know that about Bezos and shied away from some retailers Friday even as the overall market rose. Shares of Target Corp. fell 5.7 percent to $77.12, while Walmart Inc. was down 1.9 percent to $101.53. Retailers in general started off the day down, although many rebounded by the close.
There still seems to be plenty of opportunity for Amazon to pull ahead.
Michael Binetti, an analyst at Credit Suisse, said softline retailers typically offer free shipping only on purchases over $50 to $150, and that the goods usually take three to five days to arrive.
“Amazon’s move to one-day shipping is a clear incremental advantage that will reaccelerate share gains from softline retailers,” Binetti said. “This will inject another round of upward cost pressure on softline retailers’ p&l’s as they scramble to compete and maintain their value equation in the consumer’s mind.”
Given the scope of Amazon, which accounts for about half the U.S. e-commerce market, most retailers will be impacted by the shift.
Pointing to Kantar Retail data, Binetti said 84 percent of Gap’s customers also shop at Amazon. And the figures are similar for Ulta Beauty (82 percent), Victoria’s Secret (82 percent), Nordstorm (81 percent), Macy’s (77 percent), Kohl’s (74 percent) and J.C. Penney (73 percent).
“Given the high crossover and increasing consumer expectations on delivery, we think retailers will face increasing pressure to reduce or eliminate free shipping thresholds,” the analyst said.
Amazon’s move might work in the favor of Kohl’s, which just inked a deal with the web giant to process its returns across its 1,150 stores (and also gave Amazon a warrant to buy 1.1 percent of its stock).
Other retailers might find they’re trying all the harder to keep up in a delivery race they’re already losing.
But there is an argument to be made that it’s Amazon that’s starting to feel the heat.
Frank Poore, the chief executive officer and founder of e-commerce fulfillment firm CommerceHub, said: “Amazon’s move to offer Prime members free, one-day shipping is a signal that the investments traditional retailers have made in improving their customer experience and supply chain to offer Prime-like shipping with no cost or membership is impacting Amazon’s business. Recent reports point to Amazon Prime subscriptions in the U.S. reaching saturation, so they’re certainly feeling the pressure to offer more value to retain and attract new members, which will come at a significant expense. The cost difference in providing one-day vs. two-day shipping is massive and likely being funded by AWS and marketplace sellers. The question is — will the marginal benefit be worth the cost?”
But the equation for Amazon might be more complicated than that, if faster shipping is a doorway to something else entirely.
“One-day Prime may be Amazon’s Trojan Horse to build its third-party logistics network,” said Brian Nowak, an analyst at Morgan Stanley. “Amazon ground and air logistics offerings are large and cost-effective enough versus existing logistics players to become real logistics competitors.
“Amazon has been investing in building out its logistics network for years,” he said. “As such…we see Amazon’s one-day shipping offering (and higher consumer expectations) as a shoehorn to drive third-party shippers and partners to use Amazon’s budding logistics network.”
Whether Amazon is looking to move faster or into a whole new business, somebody’s going to have to push the supply chain into high gear and already the e-commerce company has come under fire for working conditions (although it has also been praised for raising its minimum wage to $15 an hour last year).
Stuart Appelbaum, president of the Retail, Wholesale and Department Store Union, said: “With two-day Prime shipping, Amazon fulfillment workers currently face speeds of 200 to 300 orders per hour in 12-hour shifts. They struggle already to maintain that pace. If Amazon plans to effectively double the speed, it must also address existing workforce needs and ensure its workers are safe. Increasing fulfillment speeds means they need to hire more workers, under more sustainable speeds that don’t put workers’ lives in jeopardy.”