Amazon – increases the pressure on retail – 1 hour delivery

Amazon announced earlier that in New York City…okay in one zip code of NYC – 10001 – it will offer 1 hour delivery of tens of thousands of items for customers in that zip code. Click here for press release. This service will be for those customers to are Amazon Prime members and cost an additional $7.99 (2 hour deliver is free), another “perk” for paying to be part of the cool kids on Amazon.com. It would appear that the new Amazon store on 34th street will be tasked with handling much of the distribution for these potential customers. While the 1 hour delivery is limited to this area code for now, the retail giant plans to expand to other cities in the near future. I wonder if Boston is on their list of potential target cities…hmmm.

This should come as no surprise as Amazon continues to act as the 800lb gorilla when it comes to retail and supply chain. The idea of such rapid delivery is also not a new one. Anyone remember Kozmo.com? During the dot com boom that cool .com company could be seen in many an office lobbies delivering everything from ice cream to the latest CD from TLC. Alas they could not solve the issues of having to carry such a wide array of inventory with order runs that could not cover the carrying costs, delivery costs etc. So should we expect Amazon to fare better? Maybe. The have a couple of factors in their favor that Kozmo.com did not:

  • Years of experience with running distribution centers – unlike Kozmo.com that really started as a company leveraging bike messengers to pick up small orders and deliver them, Amazon is a well oiled machine when it comes to understanding the nuances and challenges of running DCs with large arrays of SKUs. Their move into the 34th street location was seen by some as curious. But for Amazon it was clearly just the ability to place another potential distribution hub closer to its target audience.
  • Vast amounts of buying behavior data for those Amazon Prime members in that zip
    Just this little slice of the Big Apple

    Just this little slice of the Big Apple

    code…and else where for that matter. Amazon has years of historic data for those that sit in the 10001 zip code (about 20,000 people). And as we all know, Amazon is very good at figuring out what to suggest for our next purchase and even claim to know what to put on the truck before we even order it. Of those tens of thousands of items that could be delivered in that zip code, I have a feeling all the purchase data being analyzed in the Amazon cloud has identified the 1,000s (maybe only hundreds) of most likely items that are most likely to be ordered for those customers.

  • A war chest that Kozmo could only dream of. I think it is safe to say that Kozmo.com could only dream of one day having the war chest Amazon can dip into. With over $5b of cash on hand, Amazon can afford to lose money on their delivery model as they work out the details. And unlike Kozmo.com, Amazon is only servicing one part of Manhattan. I bet the bike messengers from Kozmo.com would have appreciated that much more!

What cannot be under-emphasized is the impact this will have with regards to firing another salvo across the bow of the retail world. Just like with other bold moves – think drone delivery – this  move by Amazon is as much to test out a new fulfillment and commerce model as it is to cause ripples through the retail world and beyond. The digital disruption it will create is  disproportional to the actual disruption, but it will force companies and supply chains to once again figure out how to combat Bezos and Amazon.

I wonder how de Blasio will feel once Amazon looks to fly drones up and down 34th street.

 

 

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Filed under Current Events, Drones, Retail, Supply Chain

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