In the US, Amazon recently introduced one-day shipping for a large selection of products for all Prime Members. This is a result of their increased Amazon Logistics operations with a fleet of around 70 planes and countless trucks, vans and local courier contractors, as well as third party delivery partners.
One-day shipping is a game changer for ecommerce as consumers are much more willing to order products that can be on their doorstep the next day rather than make a trip to the shopping mall. If an item won’t arrive for two days, tomorrow you might pop to the shops on the way to or from work or during your lunch hour. If an item is going to arrive with one-day shipping then why bother making the effort as it’ll be here by the time you get home tomorrow anyway.
(There’s a similar situation in the UK where many products are now available for same-day delivery if you make a purchase in the morning. Shipping speed definitely increases sales.)
There are some interesting insights from Amazon on how one-day shipping is impacting sales in the US in their latest investor call.
“We are really pleased with the customer response into our growing One-Day offering. In Q2 we had a meaningful step up in the One-Day shipments, primarily in North America and One-Day volume was accelerating throughout the quarter. The Ops team did a fantastic job here not only at being able to expand One-Day selection and delivery capacity, but also preparing for and handling some very high volumes on Prime Day earlier in the month.”
– Brian Olsavsky, Senior Vice President and Chief Financial Officer, Amazon
Cost and productivity hits
Amazon expect to see continued update on one-day shipping and will be making even more products available for next day delivery. However this comes at a cost and their $800 million estimate of transport costs to supply One-Day were a little higher than expected. Productivity has also taken a hit as one-day shipping purchases have to be prioritised.
Increased inventory levels – merchants take note!
Amazon have also experienced additional cost from buying more inventory and moving inventory around in their network to have it be closer to the customer. This should also be a heads up for merchants – if you want to include your stock in one-day delivery then you are probably in the long term going to have to supply higher quantities to Amazon so that they can split and ship it around the country. If you only have sufficient inventory to sit in one of Amazon’s US FBA warehouses then their ability to offer one-day shipping on your behalf will be impaired and your sales could be muted as consumers opt for alternatives with faster delivery.
In the last quarter, Amazon saw higher unit growth versus revenue growth in North America. They’re selling more products but it’s lower cost items. They are keeping an eye on this as it’s possible that one-day shipping has encouraged consumers to buy more low cost items than previously – consumables that they want in a hurry. However Amazon haven’t enough data yet to attribute this to one-day shipping and this is a metric they will be watching closely.
Investment for the future
Amazon have had large changes to their distribution and transportation network repeatedly in their history from going from media to a vast variety of different product lines so this is nothing new to them. There was the initial two days Prime shipping offer that was launched many years ago, the great expansion of our network to include FBA merchants and capacity for them and more recently, the first steps to increase One-Day and Same-Day, although on a much smaller scale. Amazon working through the disruption that one-day shipping has introduced and expect that they will regain our cost efficiency over time. Amazon have always been willing to invest for the future and one-day shipping costs are a price they are willing to accept.