Have retailers finally found the antidote to Amazon.com (NASDAQ:AMZN)?
Competitors fear the e-commerce giant's entry into new markets, and justifiably so, because it has transformed industries:
- Amazon rewrote the book on selling books, both physical and digital, jeopardizing the existence of Barnes & Noble (NYSE:BKS).
- It nearly toppled consumer electronics leader Best Buy (NYSE:BBY) by popularizing "showrooming," which allows a consumer to use a big box store as a test center before buying the product online.
- And it unveiled an innovative kind of cloud computing where users pay by the hour for capacity at Amazon Web Services.
Even when Amazon didn't displace industry leaders, it arguably disrupted their business models. From streaming video and music downloads to grocery delivery and even smartphones, Amazon's presence changed how the entrenched leaders think.
The e-commerce giant's Prime member loyalty program offering free two-day shipping also transformed the nature of package delivery. But it's here where retailers are finding out how best to fight back.
The magic bullet
Consumers have a diversity of options when it comes to where they shop and how they shop. Whether in store or online, via smartphone or other mobile device, retailers that can shorten the time and distance between a customer and their package should be able to stop Amazon.com's encroachment.
And it turns out distribution centers are the silver bullet they've been looking for.
Wal-Mart (NYSE:WMT) was an early pioneer in using its stores as distribution centers to rapidly place products customers bought online into their hands. Its free ship-to-store delivery policy spawned numerous imitators including Macy's (NYSE:M) and Target (NYSE:TGT). And both Wal-Mart and Sears Holdings (NASDAQ:SHLD) are innovating the concept further with drive-thru pick-up service so customers don't even have to get out of their car. Instead, customers use their smartphones to signal their arrival at special warehouses to have an employee bring out the package and load it for them.
Now crowd-sourced package delivery start-ups like Deliv, PostMates, InstaCart, and even Uber are flourishing as they close the last mile.
The competition heats up
Others are catching on to this concept, too.
None other than Best Buy reported a 22% increase in online sales comps in the third quarter after quadrupling the number of stores participating in its ship-from-store program.
Essentially turning 1,400 of its stores into "mini-warehouses," the consumer electronics retailer improved its ability to speedily ship products to customers that now rivals even Amazon's vaunted distribution network.
According to StellaService data, Best Buy has improved the speed of delivery so much that it now gets its products into customer hands faster than Amazon does. It's also opened up its open-box merchandise to online sales so that products that were typically available only in-store now have a much broader customer base.
Forrester Research says every retailer with an online presence should adopt similar policies if they want to level the playing field between Amazon and themselves. They point to American Apparel (NYSEMKT:APP), Gap (NYSE:GPS), Macy's, Sears, Toys R Us, and Urban Outfitters (NASDAQ:URBN) as case studies in the rapid proliferation of the concept.
Now it's Amazon that's scrambling to keep up. Where it first thought it would be able to build a few warehouses to keep the sales tax man at bay, it's since embarked on a building program to erect as many distribution centers in as many areas as possible to enhance delivery. There are more than 130 such centers worldwide with plans to build more on the way.
The burned hand learns best
Amazon taught the competition how to use rapid delivery to gain customers; now they're wielding it like a cudgel to keep the e-tailer at bay.
Delivery isn't going to spell the end of Amazon.com, but it suggests Internet sales continues to loom large as a major growth opportunity, one that bricks-and-cement retailers don't have to cede to their online rival.
Amazon taught retail the lesson that delivery is key to survival. And those retailers that learn to leverage their inventory across all their selling channels -- by either building out warehouses and distribution centers or reimagining their national footprint of stores -- will be the ones to flourish.
Follow Rich Duprey's coverage of all the retailing industry's most important news and developments. He has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Urban Outfitters. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.