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Taking the Amazon battle to last-mile delivery seriously

Amazon’s decision to experiment with deliveries bypassing traditional delivery companies takes the retail battle to the newest area of competitive advantage: the last mile.

The Internet retailer’s tiptoe into last-mile delivery starts with shipments in San Francisco, Los Angeles and its Seattle hometown for its Amazon Fresh grocery service. It will rely on its ever-burgeoning network of fulfillment and sortation centers that are increasingly designed to deliver to the ZIP code – a direct shot at the bread and butter of express-delivery firms UPS and FedEX and the United States Postal Service.

Amazon is in a commodity business. Its product offering is similar to competitor retailers. What sets it apart are lower prices, wide assortment, quick delivery and conditional free shipping. But now even those advantages are eroding, leaving the retailer squeezed for finding more profit margins and more points of difference for customers to return.

That newly developing edge happens to be the last mile. And what Amazon is up to may yet redefine retail, especially ecommerce and mobile commerce.

In short, Amazon wants to control every link in the supply chain, from sourcing the product to warehousing and now delivery to the doorstep. In certain categories, such as book publishing, it is also manufacturing the product. Owning its own trucking network and drones are part of the last-mile strategy.

Such dominance helps iron out inefficiencies in the system, yielding margins as long-suffering Wall Street demonstrates some impatience with poor returns on equity investment.

So what does this mean for Amazon’s competitors – everyone from Walmart and Target to Best Buy and ecommerce-only retailers? The focus for exemplary customer service will now equate with meeting gratification within hours.

Amazon’s goal is to replicate the physical-world shopping experience: pick a product, fish out the card or smartphone to pay and take possession of the product in a secure shopping bag – all within the span of minutes.

That, indeed, is the ultimate advantage that bricks-and-mortar retailers still have over ecommerce and mobile commerce retailers. And yet, sufficient numbers of consumers do not mind waiting for Amazon’s two-day delivery for Prime members or traditional wait times for non-members due to the sheer convenience of doorstep delivery.

Getting it
With Amazon planning to deliver products on the same day would change customer expectations and make that delivery time lag normal. EBay has already figured this out with its same-day, within-hours eBay Express delivery service and so has Google with its Google Shopping service. Their logoed delivery vans are now noticeable across Manhattan streets.

Amazon’s move to control the last-mile delivery obviates the worry of disappointing dithering customers who place orders right before Christmas Day or important holidays. To guarantee delivery and then deliver on that promise becomes a reality if Amazon controls this part of the retail transaction.

On the face of it, Amazon’s expansion of its own delivery network threatens UPS, FedEX and USPS. But the larger threat is to the bricks-and-mortar retailers who, surprisingly, did not press the ubiquity of their stores to deliver products to customers within hours.

Walmart and Target and their ilk still have time to make same-day or two-hour delivery a reality for most metropolitan areas nationwide.

Failure to match Amazon’s initiatives with their own efforts – a network of company-owned delivery trucks or special deals with UPS, FedEX or USPS – will spell the end of a major retail-store competitive advantage of instant gratification. Even worse, it may spell the end of the competing retailer as Amazon casts itself as the Walmart of tomorrow.