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Comment by dkrich | Hacker News Reader

What does the local store win on?

I think in the long-run, it'll be price.

Sure, in the short-term, Amazon can do what they do and undercut on price, but in the modern age, Wal-Mart has pretty much figured out the optimal model of inventory storage/distribution and the model of keeping inventory on-hand and having customers come to them enables them to do this at an incredibly large scale and at razor-thin margins. Yet they are still margins.

As we have seen before, delivering products at that scale and selection via delivery is extraordinarily challenging to do profitably. Amazon can do a lot of things, but one thing I don't think they will ever be able to do is bring products to peoples' doors at a cheaper price than Wal-Mart can store inventory in large stores and distribute to customers who come to them. There are just too many complexities around the delivery/customer service/quality control processes to make the economics work out.

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Wal-Mart has the downside that you have to go to Wal-Mart though. I don't just mean that in the dismissive sense that their stores are unpleasant (which they are), but there's a fundamental mismatch between an urbanizing population and a big box store in the suburbs that everyone has to drive to and lose their car in a massive parking lot.

In fact, Sam Walton knew this. His mission wasn't to dominate the world of retail, it was to bring the same economies of scale urban retail already had to rural communities.

Keep in mind that physical storefronts have costs too. Wal-Mart has warehouses too, and they're probably simpler, but when all you have is warehouses, there's a lot of complexity you can add and still have a simpler, more cost-effective model than employing battalions of people to operate cash registers and stock shelves in thousands of small towns and suburbs across the country.

there's a fundamental mismatch between an urbanizing population and a big box store in the suburbs that everyone has to drive to and lose their car in a massive parking lot.

There are Wal-Marts all over big cities, though. Public transit takes you to them.

Amazon's new service is more expensive than public transit. Also, you also don't get any exercise when using it, whereas many people like going out for a walk. That's a minor point though.

It's probably more accurate to say "There's a mismatch between Wal-Mart and San Francisco." Possibly cultural.

The nearest Walmarts to Seattle are in Renton and Bellevue. The nearest Walmarts to New York are either in New Jersey or upstate. There are Walmart "Neighborhood Markets" in Chicago, but the big box stores that they famously scale with are in the suburbs. There seems to be a Wal-Mart in LA, but not downtown, rather in the area that seems like a bunch of suburbs concatenated together. There are a few in Houston, mainly in the suburbs that were annexed to the city but there's at least one inside the 610 loop. (Having been to Houston, it is also largely a series of suburbs concatenated together.) Those are the four largest cities in the US.

By and large Walmart is a suburban phenomenon. They're trying to move into the cities because they don't have anywhere else to expand, but the assumptions underlying big box stores aren't going to hold up in that environment and they're going to become just another brick-and-mortar retailer, with all the costs that entails.

Hm, it looks like you're right. I should live in those places before talking about them.

It just seemed odd to say that Amazon has an advantage where Wal-Mart doesn't. The announcement says Amazon is offering the service in Manhattan, but there's a Wal-Mart supercenter just 30 minutes away: http://i.imgur.com/oHS2h43.png

Do you feel Amazon can make good headway in dense city areas? It seems like if Wal-Mart can't figure out how to organize distribution pipelines in a given area, then Amazon wouldn't be able to, either. So I was just trying to figure out what critical advantage Amazon might have.

Wal-Mart has B&M locations that you travel to (and if you've seen a sitcom in the last 30 years you know that "just go to New Jersey" isn't a popular solution for New Yorkers). Amazon ships the stuff to you. Now they do it in an hour, if you're in New York. That's as long as it would take to get to Walmart and back, except you can continue living your normal life instead of driving to New Jersey.

(Also, New Yorkers don't drive. So that Wal-Mart in New Jersey is closer to an hour away by transit.)

> just 30 minutes away

That's 30 minutes (each way) of my time, though. No such problem with delivery.

> I don't just mean that in the dismissive sense that their stores are unpleasant (which they are)

They once were, but I've noticed a marked improvement lately. The newly opened Walmart locally is very nice, clean, and well lit. The local grocery is a dump in comparison[1].

1) no, I don't have this home town sympathy for the local grocery store since it did some bad things in the past that makes Walmart look like a saint in comparison.

Another big difference between this and Wal-Mart is geography. Wal-Mart's strongest areas are less-densely-populated rural areas where one store can draw customers from miles around. And indeed -- you can't easily set up a same-day Amazon delivery service in rural America. The distances and low population density make it completely impractical. For the foreseeable future, Amazon will compete with Wal-Mart in these areas using traditional UPS-style delivery and larger selection.

But this is going into New York City. And the flipside is that you can't put a Wal-Mart in the middle of NYC -- it's cost prohibitive. So it's not clear that this initiative even competes with Wal-Mart really. And brick and mortar stores in the middle of an expensive city have huge real estate costs, so it's difficult (though not necessarily impossible) for them to compete on cost the way Wal-Mart does.

So then my question would be- where does Amazon store their inventory? They still have to figure out a way to give people selection and timely delivery but do so in a way that doesn't involve storing large amounts of inventory in expensive, densely-populated urban areas. The same rules apply to them as Wal-Mart in that regard. Wal-Mart could open a distribution center in Manhattan too, if the economics of it worked out.

So let's supposed that this can be done profitably in New York. New York is a special case in a sense, that it is one of the most densely-populated areas on earth, and so deliveries do scale there in a way they don't elsewhere. But then what is the play in a place like Atlanta, Dallas, or Los Angeles, where driving is essential and addresses are wildly irregular?

They store it in New Jersey, for NYC, if you were wondering.

http://www.nj.com/mercer/index.ssf/2014/07/amazon_warehouse_...

Walmart hardly counts as a "local" store. (For that matter, they also sell online.) And between Walmart and Amazon, I'd much rather do business with Amazon.

Actual "local" stores seem highly unlikely to win on price.

I suspect that Amazon and others will solve the "showroom" problem in the not too distant future, for the handful of products where that actually matters.

Other than brand loyalty, I don't see any obvious niche that a local store could do better.

> Sure, in the short-term, Amazon can do what they do and undercut on price, but in the modern age, Wal-Mart has pretty much figured out the optimal model of inventory storage/distribution and the model of keeping inventory on-hand and having customers come to them enables them to do this at an incredibly large scale and at razor-thin margins. Yet they are still margins.

That only works because people don't value their time it takes to get to Wal-Mart and shop there.

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