Fear of Amazon Pushes Retailers to Take On Risks of Same-Day Shipping | Hacker News Reader

Fear of Amazon Pushes Retailers to Take On Risks of Same-Day Shipping

nytimes.com

This is a bell Matt Yglesias at Slate has been ringing for the last year; specifically, Amazon is financed by the public markets to an extent no other retailer is or can be (look at their P/E), enabling them to compete at a loss against established businesses. People like Charlie Stross ding Amazon for its predatory marketing in the media industry, assuming that it's part of a plot to dominate the market and collect rents.

Yglesias has an even more sinister theory: that there's no real rhyme or reason to Amazon's strategy, that it's acting on the assumption that having beaten the market into submission there will somehow, in some way, be a way for Amazon to capitalize on the resulting chaos --- but that it's equally likely that Amazon will itself crater, having destroyed everyone's profits in the process.

I like Amazon (we're Prime subscribers), but I have to bear that in mind every time I prepare myself to complain about Wal Mart (which I do not like).

In any case: it's close to impossible for a small-scale retailer to compete with Amazon once Amazon decides it's competing.

Most of amazon's business is profitable last I checked. The losses come from write downs and investments, but they aren't strictly operating in the red. The business they've built right now is sustainable just as it is.

Sure; the issue is that the outsize valuation they receive in the market gives them enormous leverage to compete at (or I suppose near) a loss; they simply have more opportunities to buy market share than other companies. As Yglesias would have it, it's as if the public markets are paying for Amazon to buy up that market share even without any coherent plan for how to profit from it.

The issue Yglesias seems to have with that is that the market can profit from volatility even if, over the long term, Amazon's actions are a net negative for the larger economy, and would fail without their intervention.

I don't know how much of that I buy. I'm just pointing out the hugely privileged position Amazon has.

The margins in warehousing were razor thin to begin with, Amazon simply mops up the profits of what many smaller players would make in aggregate but does so more efficiently due to its scale.

Its like grinding in poker, once your bankroll is much bigger then all the other players combined it is a forgone conclusion that you'll win it all if you play correctly.

This sort of thing is inevitable and why you have Walmart and Tesco for example. Mature industries settle around a few outsized players.

Royalty clubs like Amazon Prime are obviously the end game. They won't go broke, they'll become the single most important account for many millions of households.

Meh. Where are the tears for all the mom and pop ISPs who can't afford to blanked a city in fiber? How will they ever compete with market funded google? :)

For some reason I don't want to like what you've written. I up voted because I agree with you.

Amazon sells stuff for more than they pay for it or as they say product profit. But it costs lots of money to sell that stuff warehouses, servers, people after you back out those costs they barely make any money at all. After costs Amazon make less money per $ sold than the wal-marts of the world.

I'd be more focused on the personalization database Amazon is building/has built. There will be a market for "I need it now" but the larger opportunity is answering the question, "What do I need?"

Luckily for smaller businesses, they can compete with Amazon and other big box retailers on that front, but they're still learning how to use/leverage the tools the big guys have been using for years.

Claiming that "there's no real rhyme or reason to amazon's strategy" doesn't seem right, since amazon is considered great at strategy(and yglesias is the wrong guy to claim it, he's not a business expert and he's been criticized before about being out of his depth).

As i see it , their strategy is simple: identify the points along e-commerce where monopolies/quasi-monopolies can be formed and control them.

So they try to control the customer, the data, the warehouses, the marketing(the digital experience), the volume and now the financing.

My guess is, due to all those, e-commerce's end-game is a winner takes most market.

If they'll have monopoly powers, destroying everybody's profits(and everybody) wouldn't matter much. At that point amazon could increase prices and profits.

I'd never looked at AMZN before, but now I have it makes me giggle. No dividends, no history of dividends, a P/E of 124 as I type and currently just-about at an all-time peak. Just how big are they intending to grow?

This is one I will definitely leave for the smart investors.

For reference, Amazon does about 10% of the business of walmart. So 10x bigger seems a reasonable goal.

Looks like retailers who kept complaining about Amazon's sales tax advantage got what they were asking for - local nexus.

We sell on Amazon, eBay, Sears, buy.com and newegg, and have been almost dounling our sales year over year. Weve learned this year that the shipping cost advantage of fulfilled by Amazon is just insane - and we already get significant UPS discounts.

Tired. Cold. Sick. Not yet unpacked. Apartment barren of foods. I fire up Instacart – for the first time ever – and order groceries to make a stew. An hour later, with free delivery, the foods arrived.

Living in the future.

Not that impressive (to me at least). Food delivery has been around since forever- pizza gets to my house in 10 minutes. I don't see why groceries should be different.

Pizza places have maybe 20 ingredients in stock that all get used at a pretty predictable rate. Keeping something like a much larger selection of fruits available and fresh when you can't freeze them is a somewhat harder problem.

Does Walmart or Target not deliver? In the UK all the large supermarkets (Tesco, Sainsbury's, M&S, Asda) let you order online and deliver to your house. They actually just get someone to go round a supermarket and pick the stuff off the shelves.

Online grocery shopping is more developed in the UK than any other major market. A large part of it is the London effect where you have a large number of middle-class shoppers who don't have cars in close proximity to each other, that makes the economics vastly better for the supermarkets.

Perhaps, though I know Oxford also has home delivery so it's not just London. I've not understood how Oxford could have it but San Francisco doesn't.

Safeway has done home delivery since at least March, so it's not an unknown service here in the US.

That's true to an extent, but I've also had deliveries from supermarkets in incredibly rural areas whilst on holiday, once to a farmhouse which was so remote you couldn't see any of the neighbours.

A really nice pizza place will have about 50 pizza ingredients in total, plus another couple dozen things on the side when you count salads, drinks, desserts, etc.

The definition of "really nice pizza place" is incredibly regional. To me, 50+ potential ingredients is an immediate turn-off. One of my favorite pizza places will actually yell at you if you ask for pepperoni or even shaky cheese.

Sure, whatever. I don't really want to play pizza snob, I just wanted to point out that some places have some multiple more ingredients than 20.

It's a good point. Even so, it's all still in about the same order of magnitude, totally different ballgame than running a grocery store.

I can't work out why this is so difficult. They already have forecasting to work out how much fruit produce to put out for sale in the store. If you order online, then they already have the stock data so if they run out then they just say that they are sold out.

I don't believe inventory management is that crude that they can't do deliveries in short time. Given that supermarkets were doing it in an albeit slightly longer timeframe (weekly), then I don't see why they can't refine the process to be same day. If anything, it gets the stock out of the store more quickly and they make a quicker sale.

Oh, I absolutely think it is doable. I've used local grocery store delivery services several times and, when there is an issue with stock, they just call you up and ask if a reasonable substitution is okay. Those delivery services, run by the store itself, would have a 2-3 day waiting period, but that I believe was more of a picking/delivery scheduling thing than an inventory management thing.

Really? Not so long ago, small, local grocery stores would make deliveries, some still do.

This is certainly the case where I'm from. Neighborhood markets always deliver to the apartments in their vicinity. Most owners and delivery boys know their customers by first name. In addition, every customer usually has an "account" where they accrue bills and pay at the end of the month. It's on an honor system. If someone doesn't pay off their account at the end of the month, they stop getting deliveries. Their only option is to personally go to the store (where the store owner can confront them) or find a neighboring store, the owner of which will most likely have heard about the customer's reputation and will most likely refuse to do business with them.

Interesting.

What's Instacart's range/pricing like? Would you say they're closer to a higher price/smaller range inner city convenience store, or do they have a lower price/larger range like an out-of-town big box retailer?

I'd say that they have the larger range of a big box retailer, with prices that are not as high as a convenience store, but not as low as big box retailer either.

Sure, and Peapod has been doing online grocery delivery for over a decade. Pretty sure that's not a response to Amazon.

Every time I'm in SF, I use Instacart.

To be frank, if a company has pg and jl's high praise, you know they're doing something right.

pg: "Incidentally, of all the startups we've funded, Instacart is one of the ones we ourselves use most. Jessica can't stop talking about how great it is. You learn how useful grocery delivery when you have small children like we do, and Instacart is by far the best option for this. Instacart is one of those rare products that's surprisingly great. I.e. you don't realize how good such a thing could be till you try it. A lot of the best startups have this quality. I wish we could figure out a way to identify them when they apply to YC, but at the moment I admit we can't." http://news.ycombinator.com/item?id=4907892

jl: "I just got a delivery 30 minutes ago, in fact. For years, I'd used Safeway.com's delivery services and now that I have used Instacart, I'll never go back. The UX is 100x better, delivery is much quicker (and cheaper), and I can order on my phone." http://news.ycombinator.com/item?id=4907948

Amazon can (possibly) pull this off due to their scale and their warehouse technology. I think the other retailers that can be successful are those brick and mortar retailers with thousands of physical locations across the country (Walmart, Target, Staples, Kohl's)- imagine a reverse brick and mortar model where the customer orders from the site but it is fulfilled directly out of their local store.

The luxury apparel market is going to be the next wave of retailers who explore this offering and, could be, successful with it. Shoppers who are spending hundreds and thousands of dollars online expect an elevated level of customer service- same day delivery (like Net-a-Porter offers) is the next step in this personalized service.

Some numbers of this in action: http://www.reuters.com/article/2012/12/24/us-usa-retail-ecom...

"292 of Macy's 800 stores have been doing double-duty as mini-fulfillment centers that assemble, pack and ship online orders"

"since 40 percent of bestbuy.com orders are now picked up."

Best Buy, when I need something "now", though it has gotten better, has had a nasty, at times outright dishonest history of issues relating to its online experience - at one time they were caught having different pricing when the site was browsed in store ("But online it was $x-20" "Sorry, sir, I'm looking at it here on our website and it's $x" "But I can pull it up on my cellphone and see that it says $x-20")...

So I don't support them, but if I need something, ordering for pickup a) ensures the price, b) minimizes upsell, and c) ensures stock (I'm sick, too, of times when there was a display model out but nothing in stock).

Heh, I wish it "ensured stock". Twice now I've ordered for pickup, gotten the email telling me it's ready to be picked up, and gone to the store only to be told that they don't actually have it. (?!?!)

It made me swear off ever shopping at Best Buy again, but I broke that promise when they started price-matching Amazon prices...

"but I broke that promise when they started price-matching Amazon prices..."

I've yet to try them on this. I'm curious - do they actually match Amazon every time, no matter what? When they first announced this, the press releases seemed to indicate that each store could independently decide not to honor on a per-situation basis.

They have the 3 times I've tried, and one of them was about 35% off of a $400 item. I think it ends in February.

Isn't this what competition is all about?

I have experienced myself different types of offerings from different startups/Companies (ebay now, Get it Now, Instacart, etc...) and I would say the following:

- For groceries, it is really awesome. Instacart prices are 10-15% above Safeway prices, but their customers don't care on average, and that's how they make money. Delivery fees are a necessary evil.

- For premium pizza, "get it now" is really great, but their business model is not sustainable: I never paid for delivery, and they only charge 5% out of which they pay 2.5% for CC processing. The fact that they want to scale now and expand to further categories without having nailed their primary suppliers (fancy restaurants that do take out but don't deliver) seems crazy to me.

- For other types of goods, one hour delivery is a bit too much, and you feel bad the first time. But then, hell it is practical, and in many ways it seems much more relevant and ecological that having an item shipped from a random warehouse in the middle of the country, boxed specifically for me, etc...Same day/next day would do in 99% of the cases though.

I think at the moment you can probably charge enough to at least break even on same day. As the article says most people don't need it so those that really do will probably pay a premium or depending on the item will go to the store.

Prime with amazon is pretty much next day/ 2 day shipping on everything? Which is likely already very fast for most people an most purchases.

I wonder if we will see Amazon as a competitor to FedEx, UPS, USPS, DHL?

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