Amazon’s Winning the Last Mile of Retailing

Farhad Manjoo at Slate has an article up talking about how Amazon’s game plan is or may change once they start collecting sales taxes. Under their current model or resisting doing so, they tend to distribute their warehouses in low-cost, low-tax states. But, if they started collecting sales taxes in Minnesota, would they also consider adding a local presence? Manjoo thinks so.

I took a look at the return labels on the Amazon orders I received this week. Kentucky, Ohio, and Nevada were the sources for my Cheerios, dish scrub, sawdust pellets, and headphones that arrived this week within 2 days of when I placed the orders. Those items could surely arrive faster if they were shipped from a warehouse of Stinson, or from the old Ford Plant in St. Paul.

But Amazon is investing billions to make next-day delivery standard, and same-day delivery an option for lots of customers. If it can pull that off, the company will permanently alter how we shop. To put it more bluntly: Physical retailers will be hosed.

While some of the items that arrived at my house are rare purchases (although I’m pretty good at destroying headphones), one that’s a routine purchase is Cheerios. In fact, it’s so routine that I subscribe to Cheerios on Amazon so they’ll automatically ship them to me on a regular basis. Amazon offers a discount for this called Subscribe & Save.

Here is what Byerly’s & Lund’s are selling Cheerios for on their website:

Cheerios at Lunds & Byerly's

Here’s what Coborn’s Delivers charges whether you use delivery or pickup:

Cheerios at Coborns

And here’s what Amazon charged me for my last order of 4 boxes of the same 14oz boxes of Cheerios:

Cheerios at Amazon

Bylery’s charges $4.95 to let you order online, then drive to one of their stores to pick up your order. Or, they’ll deliver your order for $9.95. Coborns charges $5 for delivery if you order $50 or more, or $9.95 if you order less than $50 of stuff. You can pick up for free at their warehouse in New Hope.

Amazon, on the other hand, shipped Cheerios to my house from Kentucky with no shipping charges, and for $1 less per box.

While not many people are probably ordering their Cheerios on Amazon yet, I think Manjoo is onto something here. With Amazon’s Prime shipping (free 2-day shipping to members) and Subscribe & Save discounts, they know where their most loyal customers live and even what they’ll be buying in the future, which would make it pretty darn easy to place pre-ordered products closer to those customers. Rather than paying UPS or FedEx to ship Cheerios from Kentucky, it may make more economic sense for Amazon’s to have Cheerios show up at a warehouse in Minneapolis where they’re immediately transfered to local delivery trucks for same day delivery along with books, electronics, clothes, and hardware supplies.

Order Fulfillment is the Secret Sauce

Until recently, big box stores, including now-struggling electronics stores and now-struggling grocery chains, were able to compete largely based on pricing power. They were good at moving products around the country and putting them on shelves, but it turns out that some companies are better at that key part of that type of business. For example, WalMart and Target are darn good at efficiently moving products from all over the world to store shelves where they rely upon customers to spend their own time and money coming to their stores to purchase items.

The next generation move in retail is to win the last mile. If Amazon can get the same product to my door at the same price or less than what Best Buy, SuperValu, WalMart or Target charges, why would I waste my time and money driving to their stores, navigating through ugly parking lots, finding products in a store that I can find online in seconds, then waiting in line to purchase them?

Of those five brands, only one has mastered the last mile of order fulfillment. Since Amazon doesn’t have to pay for retail real estate locations, massive parking lots, low-density aisle displays (and the army of stockers it takes to keep things looking organized), checkout staff, store security, or store management, they may have a few dollars they can throw toward their own fleets of delivery trucks.

I may be wrong, but it seems likely that the company that can get you what you want when you want to where you want at a competitive price has a good shot as earning and retaining loyal customers.

7 thoughts on “Amazon’s Winning the Last Mile of Retailing”

  1. Ed, I agree entirely, but I’m blown away that you’re the author of this article! I thought you were all about buying locally, supporting local entrepreneurs, etc. Ordering daily goods like cheerios from megacorp amazon is the polar opposite of supporting local retailers or investing in local neighborhoods, isn’t it? After all, even Wal*mart employs local people, right?

  2. @Reuben, I use a bit of a hybrid approach. For groceries, I work the perimeter of Seward Coop for perishable stuff, and like to keep it local. And, farmer’s markets. But, for commodities available anywhere, how I value my time (together with price) seems to drive many of my buying decisions.

    Having every household in a neighborhood driving cars their own cars to move a few dozen pounds of goods the last mile to their homes from big box stores may not be the best use of our time and infrastructure. The market will decide that over time.

  3. It seems progress is ahead of society’s willingness to plan for progress.

    The following might sound like complaints, but rather it is only a set of thoughts/worries–
    –we create more people at a pace exceeding the need/ability to create jobs for these people to support themselves.
    –we create more leisure time at a pace exceeding productive (revenue generation) activities, so we have more time with less money to spend on it. Thus the massive increase in time wasting industries, and God bless them because how bored would this world be without them.
    –we create infrastructure based on 100 years of development, only to have to maintain it another 100 years beyond it’s useful peak period to support late adopters and traditionalists, and low-tax types who are unable to trust how we invest in our society.
    –it is easier to refine and destroy systems than it is to create new ones; and some infrastructure will never have ROI yet is needed in a civil modern society.

    There certainly is no end to the challenges for which invention and innovation is required, but unfortunately there is a shortage of investment in the people bulldozed into the ground by this white-cane-against-the-curb progress.

    I’m not arguing for welfare, just for something to do that pays my rent (and I’ve already been trained not to ask for health care).

  4. @Bill, I think we’ll see increased residential density, or more parks where big box stores used to be. Either way, an improvement for neighborhoods.

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