Amazon Gives Retailers Another Fulfillment Headache

Two-day delivery isn’t fast enough. That’s what Amazon wants retailers to know, it seems.

The e-commerce behemoth announced it’s in the process of overhauling its core U.S. Amazon Prime delivery service to offer free one-day shipping instead two-day delivery for its members. The move will cost the company approximately $800 million and Amazon will be building “most of this capacity through the year in 2019.”

“We're able to do this, because we spent 20 plus years expanding our fulfillment and logistics network, but this is still a big investment and a lot of work to do ahead of us,” noted SVP and CFO Brian Olsavsky.

Amazon’s competitors have been just starting to catch up with its two-day shipping capabilities. Target offered free two-day shipping for the 2018 holiday season to all consumers with no minimum purchase. Walmart, which offers free two-day shipping with a $35 order minimum, teased in a tweet post the Amazon announcement that it may be able to take its rival on:

“One-day free shipping...without a membership fee. Now THAT would be groundbreaking. Stay tuned.”

Walmart will need only eight additional distribution centers to get to one-day shipping, Brandon Fletcher, an analyst at Sanford Bernstein, said in a note reported in Bloomberg. But for smaller retailers, the move from Amazon is another fulfillment headache, which will mean they need to up their game to compete with convenience and give shoppers a reason to come into stores.

Amazon says the free one-day shipping is coming soon and that it’s “already started down this path.” The program will be global, going forward, but the $800 million investment in Q2 is starting in North America.

“We've, in the past months significantly expanded our one-day eligible selection and also expanded the number of zip codes eligible for one-day shipping,” Olsavsky said. “So we're taking a significant step… It's a significant step and it will take us time to achieve. And we want to ensure that we have good delivery experience for our customers as we evolve this offer.”

Olsavsky also noted to accomplish the one-day delivery feat, Amazon will use “all of the available levers” it has, both Amazon Logistics (AMZL) and third-party carriers, as well as continued support of external transportation partners. He promised an update at the end of the second quarter.

“We really think it's going to be groundbreaking for Prime customers,” Olsavsky said.

AMAZON’S FULFILLMENT MOVES IN Q1

• Amazon and Whole Foods Market continue to grow free, two-hour delivery from Whole Foods Market via Prime Now, including the most recent delivery expansion to nine additional U.S. metros, up to 75 U.S. metros. Grocery pickup from Whole Foods Market via Prime Now is available in 30 metros, with plans for continued expansion this year.
• Key by Amazon is now available to millions more Prime members in 50 U.S. cities and surrounding areas. Additionally, Prime members can choose Key for Garage for secure delivery of Amazon packages, as well as to Key for Home and Key for Car.
• Amazon announced Shipment Zero, the company’s vision to make all customer shipments net zero carbon, with the goal of making 50% of all shipments net zero by 2030. To track this progress, Amazon will share its company-wide carbon footprint as well as related goals and programs later this year.