Farhad Manjoo at Slate has an article up talking about how Amazon’s game plan is or may change once they start collecting sales taxes. Under their current model or resisting doing so, they tend to distribute their warehouses in low-cost, low-tax states. But, if they started collecting sales taxes in Minnesota, would they also consider adding a local presence? Manjoo thinks so.
I took a look at the return labels on the Amazon orders I received this week. Kentucky, Ohio, and Nevada were the sources for my Cheerios, dish scrub, sawdust pellets, and headphones that arrived this week within 2 days of when I placed the orders. Those items could surely arrive faster if they were shipped from a warehouse of Stinson, or from the old Ford Plant in St. Paul.
But Amazon is investing billions to make next-day delivery standard, and same-day delivery an option for lots of customers. If it can pull that off, the company will permanently alter how we shop. To put it more bluntly: Physical retailers will be hosed.
While some of the items that arrived at my house are rare purchases (although I’m pretty good at destroying headphones), one that’s a routine purchase is Cheerios. In fact, it’s so routine that I subscribe to Cheerios on Amazon so they’ll automatically ship them to me on a regular basis. Amazon offers a discount for this called Subscribe & Save.
Here is what Byerly’s & Lund’s are selling Cheerios for on their website:
Here’s what Coborn’s Delivers charges whether you use delivery or pickup:
And here’s what Amazon charged me for my last order of 4 boxes of the same 14oz boxes of Cheerios:
Bylery’s charges $4.95 to let you order online, then drive to one of their stores to pick up your order. Or, they’ll deliver your order for $9.95. Coborns charges $5 for delivery if you order $50 or more, or $9.95 if you order less than $50 of stuff. You can pick up for free at their warehouse in New Hope.
Amazon, on the other hand, shipped Cheerios to my house from Kentucky with no shipping charges, and for $1 less per box.
While not many people are probably ordering their Cheerios on Amazon yet, I think Manjoo is onto something here. With Amazon’s Prime shipping (free 2-day shipping to members) and Subscribe & Save discounts, they know where their most loyal customers live and even what they’ll be buying in the future, which would make it pretty darn easy to place pre-ordered products closer to those customers. Rather than paying UPS or FedEx to ship Cheerios from Kentucky, it may make more economic sense for Amazon’s to have Cheerios show up at a warehouse in Minneapolis where they’re immediately transfered to local delivery trucks for same day delivery along with books, electronics, clothes, and hardware supplies.
Order fulfillment is the secret sauce
Until recently, big box stores, including now-struggling electronics stores and now-struggling grocery chains, were able to compete largely based on pricing power. They were good at moving products around the country and putting them on shelves, but it turns out that some companies are better at that key part of that type of business. For example, WalMart and Target are darn good at efficiently moving products from all over the world to store shelves where they rely upon customers to spend their own time and money coming to their stores to purchase items.
The next generation move in retail is to win the last mile. If Amazon can get the same product to my door at the same price or less than what Best Buy, SuperValu, WalMart or Target charges, why would I waste my time and money driving to their stores, navigating through ugly parking lots, finding products in a store that I can find online in seconds, then waiting in line to purchase them?
Of those five brands, only one has mastered the last mile of order fulfillment. Since Amazon doesn’t have to pay for retail real estate locations, massive parking lots, low-density aisle displays (and the army of stockers it takes to keep things looking organized), checkout staff, store security, or store management, they may have a few dollars they can throw toward their own fleets of delivery trucks.
I may be wrong, but it seems likely that the company that can get you what you want when you want to where you want at a competitive price has a good shot as earning and retaining loyal customers.
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