Has Amazon Pushed the Competitive Bar Higher?

   on December 28 2012 10:11 AM

Until now, the biggest weapon brick-and-mortar retailers have had in their arsenal in the fight against Internet giants like Amazon (NASDAQ:AMZN) was their ability to satisfy customers’ needs and wants with an immediacy that Internet competitors just couldn’t. But they may not be the sole proprietors of immediate gratification for long. Amazon has hinted since September that the company might harness its retail business to expand its same-day delivery service.

The possibility that Amazon could make its retail business even more competitive has prompted companies from Wal-Mart (NYSE:WMT) to Google (NASDAQ:GOOG) to eBay (NASDAQ:EBAY) to launch services of their own. While same-day shipping may be unprofitable, logistically difficult, and beyond customers’ needs, their fear of Amazon has made the service a necessity.

How is the same-day delivery service battle progressing?

Amazon is notoriously coy about its business ambitions. However, after Jeff Bezos confirmed in early September that the Internet retailer’s expanding warehouse network would reduce delivery times for online shoppers, speculation that Amazon was heading closer to announcing a same-day shipping service grew. Although analysts have said that service could secure the company’s dominance in the industry for the next decade, they have also cautioned that the costs of new warehouses could bring years of low profits. Since 2009, Amazon has offered a same-day service, but so far it has been limited to customers who lived in close proximity to its warehouses, bought only certain items, and placed orders in the morning.

Despite the difficult logistics and profitability concerns, Wal-Mart, Google, and eBay fear Amazon’s dominance more. Wal-Mart, which sells only a small portion of what Amazon does online, is the most recent entrant into the battle. During the holiday season, the retailer tested a same-day shipping service in five markets, which gave customers a 4-hour window for delivery and charged a flat $10 fee. So far, the test has been met with limited customer interest. While Amy Lester, a Walmart spokeswoman for global commerce, declined to give exact figures, she told The New York Times that shoppers picked next-day delivery more often than same-day.

CHEAT SHEET Analysis: Does this shipping trend support the retail industry?

One of the core components of our CHEAT SHEET Investing Framework explains that companies riding macro trends tend to outperform those that don’t. Think of the investing proverb, “A rising tide raises all boats.”

In retail, the growing dominance of Internet retailers has caused the profits of many brick-and-mortar retailers to plummet in recent quarters. The trend towards showrooming, where shoppers are increasingly using retailers’ stores to examine and test products before purchasing them from cheaper Internet companies, has left traditional retailers playing catch-up.

As a spokesman for personal assistant service TaskRabbit told the Times, the popularity of mobile devices, social networking, and location-based mapping services has transformed shoppers’ expectations. By indicating that it would offer same-day service in the near future, Amazon has placed the competitive bar high and set a new trend to which its rivals must adapt.

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