One of the things that vaulted Amazon.com, Inc. (NASDAQ: AMZN) to the lead in e-commerce was an early focus on delivery. The company offered free shipping to customers who exceeded certain spending thresholds. With Amazon Prime, launched in 2005, Amazon gave U.S. members unlimited, free two-day shipping for eligible items for $99 per year. Since then, the company has gone on to offer next-day and same-day shipping to Prime members on a growing list of select items.
Those moves now seem prescient. Consumer Intelligence Research Partners estimates that Prime currently counts 90 million U.S. members, who spend about $1,300 on average per year, compared to an estimated $700 per year for non-members.
While other retailers are countering, Amazon is looking to take its advantage to the next level by gaining control of the last leg of the journey when delivering products to the customer.
The last mile
Recent developments show just how serious Amazon is about the last mile. The company already has a massive logistics and delivery operation that is continually expanding. Several months ago, Amazon quietly launched a program called The Hub, which installs lockers in multi-tenant dwellings like apartment buildings, condos, and complexes. These lockers are used exclusively by residents to receive deliveries from any sender, not just Amazon.
The Wall Street Journal (subscription required) recently reported that Amazon had signed contracts with managers and owners representing more than 850,000 dwelling units throughout the U.S., and will soon begin installing lockers in those buildings. The company has signed with some of the country's biggest apartment operators, including AvalonBay Communities Inc. (NYSE:AVB) and Equity Residential (NYSE:EQR), among others.
Building owners will fork over between $10,000 and $20,000 to Amazon for the purchase of the lockers, but this may be a small price to pay to solve one of their biggest problems. With the trend toward online shopping growing, landlords have been inundated with daily package deliveries, often dedicating hours each day to sorting, storage, and delivery of the parcels. This move by Amazon will provide a fully automated solution, while the one-time payment will deliver long-term savings for the managers.
Amazon is also working to expand the number of products available for free two-day delivery. Bloomberg is reporting that the company is experimenting with a program called Seller Flex, where Amazon picks up goods from the warehouses of third-party sellers and delivers them to customers. This move will give the company further control of its product shipments.
Wal-Mart Stores, Inc. (NYSE:WMT) and its subsidiary Jet.com now offer free two-day shipping on orders of $35 or more "on millions of the items" while boasting "it's all available to you without joining a membership club or paying extra fees for the privilege." This move came after Wal-Mart acquired Jet.com late last year, and placed its founder Marc Lore in charge of the retail giant's e-commerce operations.
Wal-Mart has also acquired New York-based delivery service Parcel for an estimated $10 million. The company handles same-day shipping for meal-kit companies and online retailers in the Big Apple. This will allow Wal-Mart to expand expedited deliveries for itself and for Jet.com. Wal-Mart also gets Parcel's automated delivery platform, providing the company a foothold in an important market and the technology to expand.
One of Parcel's customers, men's clothier Bonobos, was also acquired by Wal-Mart, for $310 million earlier this year. The online retailer, which specializes in premium men's fashions, added retail locations and succeeded in seamlessly blending brick-and-mortar retail with its online sensibilities, something Wal-Mart is desperate to master.
Goliath vs. Goliath
Amazon has long worn the mantle of e-commerce leader, and Wal-Mart remains the world's largest retailer. The two are locked in an epic struggle to chart the future of retail sales. While Amazon moves into brick-and-mortar retail with bookstores and its purchase of Whole Foods, Wal-Mart is shoring up its e-commerce operations, with new delivery options and numerous acquisitions of online retailers.
It's a classic tale: Wal-Mart wants to become Amazon before Amazon can become Wal-Mart.
Danny Vena owns shares of Amazon and has the following options: short December 2017 $75 calls on Wal-Mart Stores and long January 2018 $57.50 calls on Wal-Mart Stores. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.