Amazon (NASDAQ: AMZN ) has come a long way from 2001, when it was largely written off as another dot-com bust. Since that time the web retailer's stock is up more than 20-fold and near all time highs. Amazon now dominates online book sales, which it originally specialized in , and has moved into many tangential sectors with equal success. Will same day delivery extend Amazon's rule?
An Amazon trait
Amazon CEO Jeff Bezos is famous for long-term thinking. While other companies focus on meeting quarterly expectations, Amazon focuses on growing for the future. One example of Amazon's long term planning is that is cares more about customer satisfaction than short term profits. As a result, the website has some of the lowest prices and widest selections online.
The company often prices its products at a lower price point than competitors, such as Kindle Fire for tablets. It is constantly innovating to make its customers happier, such as with Amazon Prime's flat $79 fee for unlimited 2 day shipping.
Offering same-day delivery at an affordable price would just be a continuation of Amazon's long term thinking, and Amazon has the right technology to make it happen.
After having spent a decade and a half competing in low margin markets and wringing out inefficiencies, Amazon has one of the best distribution networks in the world, with highly robotic fulfillment centers next to most major US cities that are used to create high turnover and fast turnaround times.
Wall Street playing along
Over the years, Wall Street has been accustomed to seeing Amazon sacrifice short term profits for future market share. As a result, Amazon's stock trades more as a function of revenue rather than of profit.
Amazon has already seen the benefits of offering unlimited two day shipping for a flat fee of $79 a year--Amazon Prime members spend over 150% more after they sign up. Amazon offering same day delivery for an affordable price would just be a continuation of this trend, and would likely be welcomed on Wall Street.
This is because same day delivery is the holy grail of retail. J.P. Morgan estimates that same day delivery is a $2 trillion a year opportunity that includes groceries, cleaning products, and health and beauty supplies. 75% of retail is done within 15 miles of the consumer's home. Succeeding in same day delivery would allow Amazon to sell more products to maintain its 20%-plus a year revenue growth and keep its stock in an upward trajectory.
The other competitors
Wal-Mart (NYSE: WMT ) is the 800 pound gorilla in the retail business. With over 3,000 super-centers, the retailer has an enormous 13% market share of the U.S. retail market and benefits significantly from economies of scale. Like Amazon, Wal-Mart has a very efficient logistics network and focuses relentlessly on price.
The retailer is also doing well online. Its website, Walmart.com, is scheduled to do $9 billion in revenue and grow at a 30% pace this year. Not to be left out in one-day delivery trend, Wal-Mart is testing a same day delivery service called 'Walmart To Go' in 5 U.S. cities. The service allows customers to order an unlimited number of items and have them delivered on the same day for a flat $10 delivery fee.
eBay (NASDAQ: EBAY ) is also trying to participate in the same day delivery market. Unlike Amazon and Wal-Mart, the online auction site does not have distribution centers and is consequently at a huge disadvantage to the other two giants. To make up for its deficiencies, eBay has partnered up with traditional retail stores such as Target, Walgreen, and Best Buy to deliver their merchandise ordered from eBay in under one hour . The service, eBay Now, charges $5 for orders over $25, and is currently being tested in Manhattan and Silicon Valley.
The bottom line
Amazon has come a long way from its bottom in 2001. With its long term focus and efficient technology, the e-commerce giant has the right qualities to make same day delivery possible. Given the $2 trillion market size and Amazon's previous track record of success, Amazon should be able to capture a substantial part of the market and reward its shareholders.
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.