The online retail environment is more dynamic than ever, with competition among retailers at an all-time high. According to McKinsey, e-commerce in the United States has grown about 18% per year, and now accounts for almost 9% of all retail. With such large growth in this sector, the logistics aspect of getting an order to a customer is changing dramatically. New innovations are focused on how to get orders fulfilled and to the customer as quickly as possible.
Amazon is the e-retailer that is setting the pace for consumers, leaving all others trying to catch up. Amazon’s Prime program, which promises two-day delivery, has set the bar for which many other e-retailers are trying to attain, as well as set the expectation of all online consumers. And while Amazon will not release exact numbers, experts estimate that the number of Prime subscribers in the U.S. could be as high as 90 million. In order to achieve such a quick delivery turnaround time, the company has made several investments in its logistics and supply chain:
USPS Partnership: Amazon is now shipping seven days a week, with the help of the U.S. Postal Service for Sunday deliveries.
Same Day Delivery: Consumers that live in select metropolitan areas can now get almost 1 million everyday items within the same day.
Technology: Amazon continues to make investments in technology such as drones and robots to make their delivery window faster. Amazon made Fast Company’s Most Innovative Companies list because it has continued to be nimble even as it grows.
Flex: Amazon Flex uses contract drivers to get deliveries to consumers quickly.
The High Price of Delivery
Amazon has invested heavily in updating their distribution and warehouse network to get orders shipped faster. This investment has been costly for the company, causing profitability for some quarters to show a loss. In fact, the amount of money that Amazon lost on shipping in 2016 was about $7.2 billion, according to Geek Wire. This figure represents the difference between what Amazon charges customers for shipping versus what the company spends to ship their items. As the company continues to grow and offer more items via expedited shipping, however, this discrepancy will grow as well, costing the company more money.
In order to keep up with Amazon, and meet the demands of consumers, online and physical retailers are investing a large amount of money to get to where Amazon is going. This is sure to put a strain on retailers’ economic models. Both Walmart and Target have been aggressively expanding their distribution and shipping networks to remain competitive. For example, Target recently acquired Shipt, a delivery service which will enable them to ship orders same-day. It plans to have the service available to all consumers by the end of 2018.
The last mile of delivery, which is the final leg of a shipment’s journey before it reaches the customer, will become increasingly important for all retailers to retain brand loyalty. As Amazon continues to push consumers’ expectations, other retailers will be forced to respond.