New alternatives and capabilities in the shipping industry could be a serious threat to Amazon.com's (NASDAQ:AMZN) position in online retail and an opportunity for retailers such as Wal-Mart (NYSE:WMT) and Costco Wholesale (NASDAQ:COST). Specifically, the growing popularity of same-day delivery could make it easier for companies like Wal-Mart to compete directly with Amazon.
Smaller regional shippers are creating networks that can offer lower rates and faster delivery options than UPS and FedEx, The Wall Street Journal noted. Amazon.com is using such shippers for its Prime delivery service from regional distribution centers.
Amazon.com is building a network of distribution centers to service such networks around the country, but there's already a company that has a network of 42 such centers in place in the U.S. It's (surprise!) Wal-Mart, which also owns Sam's Club. Wal-Mart's website notes that each center operates 24/7 and contains 5.5 billion cases of merchandise.
Opportunity for Wal-Mart and Costco
It wouldn't be too hard for Wal-Mart to start shipping merchandise directly to customers from distribution centers using regional shippers. Wal-Mart and Sam's Club already have experience in online retail and fast delivery. Sam's Club can ship office supplies to my house a day after I order them.
It would also be a fairly simple matter for other retailers with nationwide networks of distribution centers (such as Costco, Walgreen, and even Kroger) to do much the same thing. Not only that, but the smaller regional shippers aren't even the only fast delivery option that the other retailers have.
The United States Postal Service is testing same-day delivery service in New York and San Francisco, Bloomberg reported. The Postal Service is also delivering some shipments for Amazon on Sundays in New York and Los Angeles. The service could obviously make these options available to other retailers such as Wal-Mart as well.
It looks like Amazon is creating a nation-wide delivery network that its competitors can use against it. Worse, Amazon has gotten customers used to the idea of buying stuff online. It won't take customers long to start going to other retailers to see if they can undercut Amazon.com's prices.
Will Amazon Go after Wal-Mart, or Will Wal-Mart Go after Amazon?
We all know that nobody does a better job of undercutting competitors' prices than Wal-Mart. Online delivery also means that people will be able to shop at Wal-Mart without actually going to Wal-Mart. Instead of Amazon.com going after Wal-Mart and Costco, Wal-Mart and Costco might soon be coming after Amazon.com.
Amazon.com should definitely be worried about Wal-Mart because the discount giant reported TTM revenue of $475.11 billion on Oct. 31, 2013. Amazon.com reported TTM revenue of $70.12 billion on Sept. 30, 2013--that's less than a fourth of Wal-Mart's revenues. Wal-Mart obviously had the resources to compete directly with Amazon.com if it wanted to.
Wal-Mart has money to burn and a history of using its resources to obliterate rivals and dominate markets. Remember how quickly the goliath from Bentonville moved into a dominant position in the grocery business?
Costco also has the resources to take on Amazon.com if it wants to. The club store operator reported TTM revenue of $106.46 billion on Nov. 30, 2013.
The changing landscape of the delivery business doesn't necessarily benefit Amazon.com. Instead, it makes the giant retailer more vulnerable to competitors, some of whom have the resources to significantly undercut it in prices. Instead of creating new opportunities, Amazon.com might be launching a destructive online retail war that it might not be able to win.