In all the ways Amazon and online retailing in general have changed the dynamics of the business, perhaps nothing has had the impact of the company’s Prime service offering guaranteed two-day delivery for virtually anything it sells.
Ever since it introduced the service in 2005, the entire retailing business, including stores that sell home furnishings and lighting, have had to adapt and ramp up their own fulfillment operations to be competitive with the Big Dog in the e-commerce. (And that Dog is very Big: estimates are that Amazon will do nearly half of all online business in America this year.)
Now, the giant e-tailer is changing the rules again. In April Amazon announced that it would invest as much as $800 million in its infrastructure to make overnight delivery its new standard. That comes on top of the hundreds of millions of dollars it has already spent over the past decade building out a distribution system that now includes 75 distribution centers around the country, employing 125,000 people full-time. By comparison, the no. 2 player in online home, Wayfair, has barely a handful of distribution centers and has counted on its vendors to fulfill the bulk of its orders.
So what does this mean for independent retailers? And even larger regional or national retailers who play in the online space? Obviously, they’re not going to be able to make this kind of financial investment in their structures, even if it would increase their online sales. That kind of scale is not realistic for most other retailers, particularly those who have layered e-commerce onto their physical operations.
First and foremost, it means making sure that whatever service you offer, you have the capabilities to consistently execute at that level. Shoppers will accept longer delivery times as long as they are met.
Secondly, as a retailer, you have to look to your suppliers even more to help in the fulfillment process. Whereas you used to make your buying decisions based on price, style, quality and other traditional criteria, you must now add to that list a vendor’s ability to direct ship orders efficiently and cost-effectively. It’s becoming just as important as any other factor in your purchasing decision. Vendors need to understand this dynamic as well and up their games.
Finally, retailers — you need to do what you do best. If that means proprietary product, value-added services like white-glove delivery (if appropriate) and free light bulbs or customer loyalty programs, these are the kinds of differentiating points that will get you out of Amazon’s way.
Faster fulfillment is in fact a game changer: Two-day deliveries have proven that and one-day service will prove it again. Competing retailers – and the suppliers who sell them – cannot beat Amazon at its game. The trick is to change the game itself.