When Amazon (AMZN) began offering free two-day shipping to Prime members, that fast shipping time became the new expectation for many customers who were previously accustomed to waiting much longer for their packages.
Now, the Seattle-based e-commerce giant is setting the bar even higher with initiatives such as Prime Now and Amazon Flex, which ship goods to you in two hours and in some cases promise one-hour delivery.
“In our opinion, Amazon continues to define consumer expectations for online shopping,” wrote Neil Doshi, managing director of Americas research for Mizuho Securities, in a recent research report obtained by Yahoo Finance.
Launched in December 2014, Prime Now delivers orders to Prime members in over 45 US cities for free in two hours or less, with one-hour delivery possible for an additional $7.99 free. Amazon Flex, meanwhile, has evolved into a sort of Uber for e-commerce since it arrived in September 2015. Flex users in 19 cities can pop open the Flex Delivery app, place an order, and a part-time driver drops it off on their doorstep.
Shipping initiatives like Prime Now and Flex Delivery for Amazon make sense given the company’s expansion philosophy, which emphasizes aggressive market growth and customer service over short-term profits.
Since its launch 12 years ago, Amazon Prime has transformed shoppers’ expectations around delivery and, in turn, spearheaded an all-out arms race for faster shipping — an area other companies such as Google (GOOG, GOOGL), eBay (EBAY) and even Uber itself want a piece of. Meanwhile Prime has evolved far beyond its simple roots into a crucial all-inclusive package that also includes streaming entertainment and e-book lending and serves as a tool for acquiring and retaining customers.
It’s also a strategy that has cost Amazon billions of dollars. On its own, fast shipping is a pricey proposition, because it means relying upon and constantly expanding its vast infrastructure of fulfillment centers to get items from Point A to Point B as quickly as possible. Initiatives like Prime Now, which demand two-hour delivery timeframes, place added pressure on the company’s growing warehouse infrastructure.
“We believe that Prime Now expansion could continue to be a drag on margins; however, we could see continued strength in GMV [gross merchandise volume] growth for Amazon,” Doshi wrote.
And while some analysts have pegged Amazon in the past as the culprit behind the long decline (or extinction) of traditional brick-and-mortar retailers like Circuit City, Barnes & Noble, and others, Doshi attributes their “woes” instead to lagging behind when it comes to offering new, unique shopping experiences, improved customer service, and better personalization through the smart use of data.
Still, Doshi noted, “Retailers appear to be investing more in technology and customer experiences to bring customers back.”
That means Amazon may face more competition from the retailers it was supposedly crushing in the past.
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