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Ideoclick eBook

Amazon's Same-Day Delivery Will Shake Up Retail

By Theodore F. di Stefano
Jan 17, 2013 5:00 AM PT

I recently went to a local Staples store to purchase a cartridge for my HP laser printer. The cost was about US$80, including sales tax. While I was driving home, it suddenly dawned on me that I should have ordered the cartridge from Amazon at a much lower price.

Amazon's Same-Day Delivery Will Shake Up Retail

As soon as I arrived home, I searched the Amazon site for suitable alternatives to the costly cartridge that I had just purchased. Sure enough, I was able to buy two laser printer cartridges for a total of $16. In order to take advantage of Amazon's free shipping, I increased my order a tad by buying two boxes of copy paper. Total cost, about $25. Needless to say, I returned my costly Staples purchase the next day.

The point is, if Amazon is currently so competitive, what will happen to the retail marketplace when it becomes even more competitive when same-day delivery becomes ubiquitous?

Same-Day Delivery and Its Ramifications

The current Amazon model, as I see it, is to build warehouses -- distribution centers -- in as many states as practicable in order to have their merchandise as close as possible to the end user, the buyer. This change in direction for Amazon puts additional pressure on the big-box stores and other retailers. Just think how easy it was for me to return my printer cartridge to Staples and order it from Amazon.

I realize that some people still want to see and feel a product before they buy it. Yet, online retail sales have skyrocketed to such an extent because more and more people are becoming comfortable with ordering certain merchandise from the comfort of their homes with a virtual click or two.

So many of the products that Staples, Walmart and other retailers sell are so-called fungible goods, interchangeable products. With that in mind, it seems that a large portion of the merchandise that these retail behemoths sell can be purchased online. My guess is that we'll see more and more of the large retailers increasing their online exposure and not stressing their bricks and mortar presence as much.

Large Retailers at a Disadvantage

What's a large retailer to do? They are already highly invested in real estate, including warehouses that supply their stores. If they are to successfully compete with Amazon, they would likely have to open additional warehouses in order to efficiently supply their online customers. Even if they didn't have to build additional warehouses, they will still be at a disadvantage to Amazon because Amazon needs no actual retail presence. They're doing just fine with their virtual presence -- their online presence.

We've probably seen images of Amazon employees plying around large warehouses on tricycles. They travel miles each day, picking out various products and tossing them into their large baskets so that they can fill orders. The products are brought by them to the shipping department, which then concerns itself with the addressing, packaging and shipping.

But, not anymore! In March of 2012, Amazon announced that it was purchasing Kiva Systems, a specialized maker of robots that services warehouses. The purchase price was $775 million in cash.

One can just imagine how Amazon's future warehouses will look. Robots going from bin to bin picking out and picking up merchandise and carrying that merchandise to the shipping department. This should ultimately bring down Amazon's cost of shipping in a noticeable way. Just think, robots don't receive any fringe benefits, they receive no vacation pay, Amazon doesn't have to pay workers' compensation on them. We can go on and on with this analysis. Suffice it to say, not only should Amazon's shipping costs be noticeably reduced by these robots, but perhaps the speed of shipping will go up, assuming that the robots can move along faster than someone on a tricycle.

Computerized Robots

I have no doubt that the robots in the future Amazon warehouses will be totally plugged into Amazon's formidable computer infrastructure. This will create instant tracking of an order throughout the factory, assuming that Amazon doesn't already have that capacity with its present workforce.

Perhaps the Amazon robots' job description will go beyond what Dave Clark, Amazon's vice president of global customer fulfillment described when he said: "Amazon has long used automation in its fulfillment centers, and Kiva's technology is another way to improve productivity by bringing the products directly to employees to pick, pack and stow." Clark also said that "Kiva shares our passion for invention."

My guess is that the robots will be doing much more than bringing the products directly to employees to pick, pack and stow. I don't see why they couldn't do much more, giving the state of robotics in the United States today.

What's a Retailer to Do?

I wish I had the answer to that question. I'm certainly not predicting the imminent demise of the large retailers. They have no doubt been thinking about what I am presently pondering. The hard fact is that we are now pretty far down the road to an online economy. More and more people realize that Amazon's prices are hard to beat.

When they can couple Amazon's prices with same-day delivery, would you be willing to pay a little more for that same-day delivery and stay in the comfort of your home and, with just a few clicks, order merchandise to be delivered that very day?

It's like having a genie in a bottle, rubbing the bottle and saying, today I want ...

Good luck!

Theodore F. di Stefano is a founder and managing partner at Capital Source Partners, which provides a wide range of investment banking services to the small and medium-sized business. He is also a frequent speaker to business groups on financial and corporate governance matters. He can be contacted at Ted@capitalsourcepartners.com. Follow Theodore F. di Stefano on Twitter.

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