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Amazon Hints at Instant Gratification

By Erika Morphy
Jul 13, 2012 7:00 AM PT

Not too long ago Amazon had an important card to play as it competed for -- and went on to win -- online customers: "Buy with us," it promised, and "you will not have to pay sales tax."

Amazon Hints at Instant Gratification

It was a potent argument -- possibly one of the reasons for the etailer's wild success -- and thanks to a murky legal landscape, Amazon was able to sell online without collecting sales tax from its customers for more than a decade.

That was then. A few years ago, stung by the recession and long resentful of their missing revenues, state after state began clamping down on Amazon, aided by brick-and-mortar retailers who had been decrying the uneven playing field for years.

Amazon gave in, negotiating a series of deals and agreeing to collect sales tax in a handful of states.

Right Now as a Business Case

So is that it for Amazon and its competitive edge? Not hardly. It appears that the company is focusing on another competitive strength -- its highly complex and sophisticated warehouse and distribution network -- to step up its same-day delivery service.

For states, this move is no doubt a nonissue -- but for brick-and-mortar retailers, it is nothing short of a disaster.

"Shopping is a category where instant gratification is very important," said Rich Hanley, associate professor and director of the graduate journalism program in the School of Communications at Quinnipiac University.

"Amazon is able to offer a shopper a wide variety of goods from a range of brands -- sort of like a virtual shopping mall -- and has a number of highly advanced e-commerce features," he told the E-Commerce Times. "If you add same day shipping to that mix, well, it would be nothing less than the Holy Grail of retail."

It is difficult to imagine how local retailers and even nationwide brick-and-mortar chains, including Walmart, could compete, he said. The local retailers don't have the scale of Amazon, and Amazon doesn't have the brick-and-mortar overhead of an on-the-ground retail presence that the Walmarts do, he explained.

Expanding Infrastructure

Not that Amazon has formally announced that this is its strategy. A frenzy of speculation, fueled by a Financial Times article this week, has gotten the industry thinking along these lines, and the more the scenario is contemplated, the more it makes sense.

As part of its agreements with states to avoid back collection of sales taxes, Amazon agreed to invest in warehouse facilities and increasing employee headcount. It is building new facilities in New Jersey, California, Texas and Virginia. The upshot is that these new facilities will put Amazon within a few hours delivery of millions of consumers.

A Retail Goliath

Amazon is on its way to becoming the new Walmart, said Jim Post, a professor of strategy and policy at Boston University School of Management. It is an entity to be feared and loathed by local business communities.

"Amazon has proven itself to be a powerful and successful retailer not only of books but all kinds of products," he told the E-Commerce Times. "It has become a goliath in the retailing community."

So yes, Post, concluded, local retailers should definitely worry.

The Service Play

Local retailers do have one card to play, Post said -- service and understanding of a customer base that only a boots-on-the-ground retailer can have.

"The vulnerability of each retailer will be different, and to fight back, they will have to figure out how to offer their customers what Amazon can't."

Personalized -- and in person -- customer service is where most will find they have an advantage over Amazon, he said.

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