Amazon's Machiavellian Plan for Retail Dominance

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How many times have you come home to find a note stuck to your door from FedEx or UPS that you missed a delivery? 

As it built out its distribution center network, (NASDAQ: AMZN  ) sought to eliminate the frustration by installing lockers  in grocery stores, drugstores, C-stores, and retail establishments across the country. The customer would order an item online and receive a code to open a locker when the package was delivered. The stores would get a fee for renting out space, the customer didn't miss a delivery, and Amazon built up good will even with its rivals.

Despite the apparent win-win-win situation, it doesn't always work out as planned. Two partners in the experiment, office supplies retailer Staples (NASDAQ: SPLS  ) and electronics store RadioShack (NASDAQOTH: RSHCQ  ) , both dropped out, realizing they'd been had by an expert trickster. That they were even involved was curious from the beginning, and as the rivalries between brick-and-mortar space and e-commerce mounted, it was only a matter of time before the deal fell apart.

For a time it seemed that despite being competitors, the retailers might increase foot traffic in their stores, thereby boosting their own sales. Although customers may indeed have been satisfied, it's likely they were happy with Amazon, and not necessarily with Staples or RadioShack.

Helping to keep your rival's customers happy must have been a sore point. Trailing sales at Amazon are up 23% over the past year while falling 1% at Staples and being essentially flat at RadioShack.

Considering e-commerce and the showrooming effect crippled consumer electronics retailer Best Buy (NYSE: BBY  ) , as well as driving Circuit City and 6th Avenue Electronics out of business, RadioShack was essentially providing aid and comfort to the enemy. For Staples, having the second biggest online store in terms of stock-keeping units, bested only by Amazon, still hasn't stopped the office supplies specialist from losing sales to its rival.

According to a Bloomberg report, Staples said in an email that it ended the partnership because it "didn't meet the criteria we set up together," clearly meaning the program wasn't translating into any incremental sales. For its part, The Shack said it just didn't want the lockers cluttering stores' new layouts. Whatever. 

Delivery, in general, is changing. Wal-Mart has expanded the ship-to-store concept such that Target is starting up a similar service, and the growth of crowdsourced delivery gives both Google and eBay the opportunity to offer same-day delivery. Even shopping mall operator General Growth Properties has partnered with upstart Deliv to make the mall itself a distribution point.

The Amazon experiment with rival retailers was a savvy move, something Sun Tzu or Machiavelli might have appreciated about how to deal with enemies. It remains a genius strategy and one we'll probably see expand further, but now not at any store that might consider Amazon to be a direct competitor.

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9/26/2016 1:18 PM
AMZN $799.20 Down -6.55 -0.81% CAPS Rating: ****
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RSHCQ $0.00 Down +0.00 +0.00%
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