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As Prime Day Approaches, Amazon Stares Down Barrel Of The Delivery Gun

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As Prime Day Approaches, Amazon Stares Down Barrel Of The Delivery Gun

Amazon.com, Inc. (NASDAQ: AMZN) has encountered many defining moments in its quarter century of reshaping American commerce. Beginning in the wee hours of Monday morning, another of those moments will be upon it.

At 2:59 AM eastern time July 15, Amazon will unleash "Prime Day," the online ordering extravaganza that in its fifth year is fast rivalling in relevance the day after Thanksgiving, known as "Black Friday," in the hearts, minds and wallets of an e-commerce-obsessed global populace (It will be available in 18 countries this year). But this Prime Day will be different: For the first time, it will run for two full days: July 15 and July 16. It will be the first such event to showcase Amazon's free one-day delivery service to its Prime customers; the service went national in the U.S. on June 3, replacing the prior two-day commitment window. This year, Amazon will have to manage without the services of FedEx Corp.'s (NYSE: FDX) U.S. air network; FedEx did not renew its domestic air contract with Amazon, but is still providing ground deliveries which is expected to be a key part of the Prime Day mosaic.

No one will hazard a guess on the magnitude of this year's traffic. Amazon declined comment other than to express confidence in its ability to deliver the goods. Brittain Ladd, a former Amazon executive and now a retailing consultant, said that if things go well, the company will rake in between $4.5 billion and $5.5 billion in sales during the two days alone. Last year's Prime Day, which ran for 36 hours, resulted in the ordering of more than 100 million products, surpassing Black Friday, the "Cyber Monday" after Thanksgiving, and prior Prime Days as the biggest sales event in Amazon's history for a day-and-a-half period. Between the more than one million special deals with substantial price markdowns, a 48-hour ordering window, and the wall-to-wall exposure from the general, business and trade press, there is little doubt this year's event will break all records, with a good chance of doing so by a country mile.

For Amazon, however, the two days could end up being a double-edged sword. The expected spike in volumes, combined with the launch of the one-day delivery commitment that has yet to be tested on such a massive scale, could pressure its delivery infrastructure. When Amazon announced the launch of one-day deliveries in late April, it acknowledged that achieving consistent execution would take a great deal of work and time.Yet it took just a little more than a month for the program to go national, and today it applies to 10 million items.

Carson Krieg, co-founder and director of carrier operations at Convey, Inc., an I.T. company that, among other things, tracks last-mile delivery performance, said Friday that Amazon may have bitten off more than it could chew by rolling out one-day deliveries on such an aggressive timetable, and especially a timetable that coincides with this year's Prime event. Amazon is still a couple of years away from operating a network to consistently support its one-day commitment, and the projected volumes will continue to swamp its delivery partners, who have other shippers to service besides Amazon, Krieg said.

Rob Martinez, co-founder and CEO of consultancy Shipware, Inc. said the enormous Prime Day volumes and FedEx's absence will "flood and overwhelm" Amazon's internal capabilities. Amazon will rely heavily on UPS Inc., one of its core transport partners who continues to work with Amazon even though it is apparent that the two are competing nearly as much as they are collaborating, Martinez said.

If the data from Rakuten Intelligence is accurate, Amazon has a spotty history of delivery performance. Its on-time delivery performance, both for its own network and those of its partners, sits at about 84 percent, a subpar rate in the parcel industry (Rakuten executives didn't respond to e-mail requests for comment).

The U.S. Postal Service (USPS), Amazon's major delivery partner, was stressed during last year's Prime Day, in part due to the surges in volume, Krieg said. In the week after the event, USPS' volume across Convey retail customer base dropped 92 percent from what would be considered a typical week, Krieg said. In addition, the average transit times for parcels moving through the USPS system rose to 4.4 days from 3.3 days the year before, and negative customer feedback increased by 10 percent, according to Convey data.

There is no one clear-cut reason for the dramatic drop-off in post-Prime Day volumes, according to Krieg: Other retailers may have decided to avoid using USPS that week. A glut of orders may have created too many logistical issues for USPS. Other retailers may have only gotten order crumbs after consumers shot their budgets on the carrier, or if retailers lost that much in business after consumers spent their hearts out on Prime Day.

Whatever the case, Krieg said that USPS will be a lesser player on this year's Prime Day than it has been in the past. He said that more parcels than ever will be handled by Amazon's "Flex" driver network, an Uber-like model where contract drivers with their own vehicles are summoned by an app to warehouses to pick up and deliver packages.system. 

Given Amazon's history of steamrolling most everyone and everything in its path, there is no shortage of sanguine types. Marc Gorlin, CEO of crowdsourced delivery provider Roadie, said that Amazon has done an excellent job to "distribute its infrastructure risk," and that it has the resources in place to execute next week. Ladd, the consultant, said Amazon's biggest headache won't be delivery challenges but events outside its control, such as disruptions at multiple fulfillment centers by workers, egged on by organized labor, calling attention to the need for improved working conditions and better pay. Amazon loses $1.2 million per minute when orders can't be taken, Ladd said.

Amazon will not miss FedEx's airlift, said Ladd, adding that it's plausible the two will end their relationship entirely by 2021 or that the volumes will dwindle to one to two percent of current levels. Even Krieg said that FedEx's absence will not be a problem, noting that Amazon has done enough forward-stocking of the types of goods that in the past would typically move on a FedEx plane.

The stakes are huge, mainly because Prime Day activity drives secular improvements across Amazon's business. According to data from investment firm Cowen & Co., 63 million U.S. households were signed up for Prime by the end of the second quarter, and 10 percent of all non-Prime households plan to sign up during the Prime Day cycle. What's more, Prime members order nearly twice as much per month as non-Prime members, Cowen said.

According to Ladd, if this year's Prime Day is successful, Amazon will hold more of them, eventually increasing it to a quarterly event. Not only would this generate excitement in the marketplace, but it would help Amazon flush out unwanted and end of life products from its inventory more frequently, he said.

Image sourced from Pixabay

Posted-In: Amazon e-commerce FreightNews Retail Sales Markets Tech General Best of Benzinga

 

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