More than 20 retailers have joined forces to take on the evil empire that is Amazon.com (Nasdaq: AMZN). Hey, I guess if you can't beat 'em on your own, you might as well join up with a bunch of your competitors.
These retailers have formed a shipping network they believe will help combat Amazon's unlimited shipping options. Similar to Amazon, the ShopRunner network will offer unlimited, two-day shipping for $79 a year. The retailers in the network are hoping the addition of free returns will allow them to compete with the Amazon Prime program, which does not pay for customer returns.
ShopRunner will include retailers as varied as Dick's Sporting Goods (NYSE: DKS), AutoZone (NYSE: AZO), PetSmart (Nasdaq: PETM), and RadioShack (NYSE: RSH). However, competitors of these companies are also joining. For example, two of Dick's Sporting Goods' primary competitors, The Sports Authority and Holabird Sports, are part of the network. So instead of greatly increasing revenues, ShopRunner may just serve to narrow margins.
Economies of scale
Amazon has built something that all of these companies want, but cannot achieve on their own: economies of scale. The e-tailing giant's now-global network is unmatched in its industry.
Amazon is the biggest online retailer in the country, and its 8% share of the e-commerce market has no peer. While the company does not report information regarding its Amazon Prime shipping program, most analysts believe it has been highly successful. It is believed that Amazon Prime has as many as 5 million members paying $79 a year for the service globally, with 2 million to 3 million of those customers in the U.S. It is also estimated that these Amazon Prime customers spend about three to four times more than customers who aren't using the service. In addition, some customers purchase the service and use it much less than expected, acting as a subsidy for the company to pay for customers whose shipping costs exceed the $79 threshold.
The shopping experience
It would be silly to assume that ShopRunner could ever pull together enough stores to even come close to competing with Amazon's selection. Included in Amazon Prime are many of the thousands of independent businesses that use the Amazon network to sell and ship goods. It would be difficult to propose a plan that would tie together large retail chains and Bob's Used Video Game Shack in the same shipping service.
Another unique Amazon Prime service is the ability to use gift cards for all of your Amazon purchases. The ShopRunner program has no universal gift card for participating retailers; instead, gift cards will have to be purchased for each retailer individually. The gift card business is a large profit center for Amazon, and another service difficult for ShopRunner to incorporate successfully.
In addition, users can stay on Amazon.com's site and find everything they're looking for, from shoes to auto parts. ShopRunner does not have this same functionality, and will frustrate users trying to navigate between different retailer websites.
The Foolish bottom line
ShopRunner will have serious trouble scaling up its cluster of individual sites into a more enjoyable user experience. For example, a shopper who wanted to buy clothing could use ShopRunner, which only has one Phillips-Van Heusen line, Calvin Klein. Or she could go to Amazon and find all PVH lines, as well as Perry Ellis (Nasdaq: PERY) and Kenneth Cole (NYSE: KCP), among many other designers. Doesn't seem like a tough choice for now. If I were a betting man, I'd wager it'll remain that way into the future.
Do you think ShopRunner will be able to compete with Amazon? Let us know in the comments box below.
