AMAZON'S ONE-DAY SHIPPING SETS OFF NEW HOLIDAY RETAIL WAR
Game 7 of the World Series was a few hours away when Fanatics tech chief Matt Madrigal met me in the Manhattan office of his sports-gear company. His voice was filled with excitement as he talked about an expected surge in customer sales that late October day after the new champion won — he just wasn’t yet sure which team it would be.
“It is truly the most unpredictable business,” he said about selling sports apparel, mentioning how players can reach celebrity status in seconds thanks to one clutch play. And fans aren’t patient about wanting this new stuff. “You want it now,” Madrigal added.
Madrigal’s job of fulfilling digital shoppers’ demands will get tougher this holiday season, with the two biggest names in retail, Amazon and Walmart, both diving headlong into one-day online delivery. Walmart’s service is free for orders over $35 and Amazon’s comes at no additional costs for its Prime members, who pay $119 annually.
I interviewed five e-commerce executives, including Madrigal, about this trend to next-day shipping and how it’ll impact their holiday sales. Most acknowledged it’ll make things harder for them, since their customers may come to expect such speedy deliveries. At the same time, they outlined several strategies they hope will help them survive against the two juggernauts of shopping and keep us shoppers coming back, even if we have to wait a little longer to get our stuff.
One-day shipping, by the way, isn’t something smaller players can easily replicate, since it typically requires a whole lot of well-stocked warehouses placed strategically across the country to pull off these fast shipping times. Fanatics operates 10 warehouses in the US, and the other execs I talked to run one to three warehouses, compared with Amazon’s network of over 400 US delivery locations.
“We’re never going to be able to compete with Amazon [logistics], so we’re not trying to compete with them directly in a shipping-time war,” said Richard Greiner, co-founder and co-CEO of Huckberry, which sells men’s clothing, boots and camping gear.
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If these companies don’t find ways to stand out against Walmart and Amazon, they risk going the way of RadioShack and Toys R Us, joining a long list of companies that couldn’t cut it in the brutal world of retail. That outcome could hurt customers, since they’d have fewer shopping options and less selection. With the biggest players facing less competition, they could even push prices higher.
It also may not be environmentally conscious to ship you a $2.42 box of tea so quickly. Amazon, however, says one-day shipping is actually more environmentally friendly than other options because it requires the company to store more inventory closer to customers, instead of hauling items in from faraway warehouses.
Plus, it’s likely a bad look for Amazon to use faster shipping times to nab more of its rivals’ sales, since it’s already under antitrust investigations from Congress and regulators.
Video: What Amazon’s one-day shipping means for you
Still, the benefits of next-day shipping are obvious: You get your stuff faster, and that pressures other retailers to keep up. Amazon forced the rest of retail to respond after it introduced Prime two-day shipping in 2005. The program was so successful and copied so much by rivals that Amazon moved to one-day shipping to stay ahead of the crowd. A standard of same-day shipping, then 30-minute drone deliveries, could be next.
Amazon has already seen signs that one-day delivery is a winner with customers, with increased demand pushing Amazon’s quarterly sales growth to its highest level in a year.
“The long-term benefits that they stand to gain are substantial,” Gartner analyst Oweise Khazi said about Amazon and Walmart moving to one-day shipping, “and they do have the means to do it.”
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At Fanatics’ Manhattan office, there’s a long cabinet decorated with bobbleheads and sports memorabilia, including a Dolphins helmet signed by Dan Marino and a football signed by Joe Montana. Nearby on a wall is a piece of artwork by Dwyane Wade that’s in the shape of the NBA logo. Toward the back is a showroom behind glass doors that’s filled with Sixers and Devils jerseys and Bruins hats.
In a nearby conference room, Madrigal told me Fanatics plans to fight back against one-day shipping by speeding up nearly every aspect of its business. That effort includes spending $150 million annually on new technology, including work to strengthen the Fanatics mobile site, ensuring you can quickly make a purchase on your phone even in a crowded stadium.
Fanatics also opened a new fulfillment center in Nevada in 2017 to get packages to its West Coast customers faster and it built up its real-time analytics so it can catch onto buying trends and make sure it has the right inventory in stock.
A lot of this work has been going on for years to help Fanatics grow and should be even more critical going into Black Friday next week.
Madrigal said offering a unique selection was also key to standing out — a point mentioned by every other e-commerce exec I interviewed. Doing that is pretty easy for Fanatics, since it has partnerships with every major league in the US as well as several prominent college teams and international clubs, giving it exclusive rights to manufacture much of its gear.
A lot of this work has been going on for years to help Fanatics grow and should be even more critical going into Black Friday next week.
Madrigal said offering a unique selection was also key to standing out — a point mentioned by every other e-commerce exec I interviewed. Doing that is pretty easy for Fanatics, since it has partnerships with every major league in the US as well as several prominent college teams and international clubs, giving it exclusive rights to manufacture much of its gear.
Those partnerships, a cornerstone of Fanatics’ business, ensures its leaders don’t have to worry as much about Amazon’s latest shipping craze, since they make and control popular sports merchandise that can’t be found on Amazon.
It gets into people’s minds that this is the way commerce should be, but it’s not sustainable for most businesses.
Paul Trible, CEO and co-founder of Ledbury, a men’s clothing site
Sellers that aren’t lucky enough to be in business with the NFL and NBA find other ways to offer exclusive stuff. Huckberry sells house brands Flint and Tinder, and Proof. Uncommon Goods, which sells jewelry, sand art and handmade gifts, designs its own products and cuts deals with manufacturers and artists to ensure that nearly half its inventory can be found only on its site. Founder and CEO David Bolotsky said he’s working to push that number even higher.
“In my opinion that would be a recipe for disaster for us and companies like us,” Bolotsky said about offering next-day shipping, adding that it would cost way too much in delivery and warehousing fees. “I think our products are worth waiting a few days for.”
Video: Amazon wants to be your regular supermarket
But Bolotsky isn’t ignoring the trend of same-day shipping entirely. He said he opened a third distribution center in Indiana, adding to the company’s warehouses in New York and Nevada, to offer quicker deliveries. That’s still teensy compared with Amazon’s operations.
A year ago, Uncommon Goods also launched Uncommon Perks, which offers unlimited shipping for $15 a year. Bolotsky described it as his much smaller version of Prime membership.
The road to one-day
The one-day shipping frenzy kicked off in April, when Amazon out of the blue announced its plans to move its two-day Prime shipping service in the US to one day. It’s already spent billions of dollars on infrastructure and inventory to set up the next-day program, and eaten into its profit to do so.
Amazon, the world’s biggest e-commerce company, now ships over 10 million products next day coast to coast for Prime customers.
Walmart, the biggest retailer in the world, has often been caught flat-footed in its competition against Amazon, but this time responded quickly to the one-day deliverychallenge. In May, it launched a competing service in Las Vegas and Phoenix.
The service is now available for 75% of the US population, reaching that goal ahead of schedule. Best Buy and Target have also expanded their next-day and same-day delivery services.
When asked for comment for this story, Walmart pointed to past statements by its US e-commerce chief, Marc Lore. He told CNET in May: “We’re expecting, based on research, customers to really appreciate the upgrade here.”
Amazon is already helping smaller sellers on its platform deliver their items faster through its Fulfillment by Amazon program, which lets merchants piggyback off Amazon’s logistics network. The service costs these sellers extra in warehousing and packaging fees.
“We’re excited to offer Prime members in the US free One-Day Delivery on more than 10 million items this holiday season,” an Amazon spokesperson said in a statement, “including millions of items from small- and medium-sized businesses who sell on Amazon.”
In addition to same-day shipping, Amazon and Walmart are trying to one-up each other in online grocery deliveries, in-store pickup and even in-home delivery.
If you can’t beat ’em, join ’em
Another tactic smaller e-commerce companies are employing is teaming up with the bigger guys.
Paul Trible, CEO and co-founder of men’s clothing site Ledbury, sells a small selection of 20 shirts on Amazon, so he can nab new customers looking for higher-end clothing. Fanatics does the same kind of thing by powering Walmart’s sports merchandise. (Fanatics also runs the CBS Sports online store, which is owned by CNET’s parent, CBS.)ne days to arrive. But offering guaranteed three-day deliveries increases his shipping costs from about $8 a package to $15. Next-day shipping would ruin his profits, so he doesn’t do it.
“It gets into people’s minds that this is the way commerce should be, but it’s not sustainable for most businesses,” he said.
Brandless, which makes lines of environmentally friendly luggage, cookware and toiletries, plans to bring its items closer to consumers by putting them in up to 10,000 stores by the end of next year — no word on which stores the company will partner with yet.
In the meantime, Brandless CEO John Rittenhouse, who once ran Walmart.com, says he wants to speak up about slower shipping as a positive for the planet, which he thinks will resonate with his environmentally conscious customers.
Paul Trible, CEO and co-founder of Ledbury, a men’s clothing site
Sellers that aren’t lucky enough to be in business with the NFL and NBA find other ways to offer exclusive stuff. Huckberry sells house brands Flint and Tinder, and Proof. Uncommon Goods, which sells jewelry, sand art and handmade gifts, designs its own products and cuts deals with manufacturers and artists to ensure that nearly half its inventory can be found only on its site. Founder and CEO David Bolotsky said he’s working to push that number even higher.
“In my opinion that would be a recipe for disaster for us and companies like us,” Bolotsky said about offering next-day shipping, adding that it would cost way too much in delivery and warehousing fees. “I think our products are worth waiting a few days for.”
Video: Amazon wants to be your regular supermarket
But Bolotsky isn’t ignoring the trend of same-day shipping entirely. He said he opened a third distribution center in Indiana, adding to the company’s warehouses in New York and Nevada, to offer quicker deliveries. That’s still teensy compared with Amazon’s operations.
A year ago, Uncommon Goods also launched Uncommon Perks, which offers unlimited shipping for $15 a year. Bolotsky described it as his much smaller version of Prime membership.
The road to one-day
The one-day shipping frenzy kicked off in April, when Amazon out of the blue announced its plans to move its two-day Prime shipping service in the US to one day. It’s already spent billions of dollars on infrastructure and inventory to set up the next-day program, and eaten into its profit to do so.
Amazon, the world’s biggest e-commerce company, now ships over 10 million products next day coast to coast for Prime customers.
Walmart, the biggest retailer in the world, has often been caught flat-footed in its competition against Amazon, but this time responded quickly to the one-day deliverychallenge. In May, it launched a competing service in Las Vegas and Phoenix.
The service is now available for 75% of the US population, reaching that goal ahead of schedule. Best Buy and Target have also expanded their next-day and same-day delivery services.
When asked for comment for this story, Walmart pointed to past statements by its US e-commerce chief, Marc Lore. He told CNET in May: “We’re expecting, based on research, customers to really appreciate the upgrade here.”
Amazon is already helping smaller sellers on its platform deliver their items faster through its Fulfillment by Amazon program, which lets merchants piggyback off Amazon’s logistics network. The service costs these sellers extra in warehousing and packaging fees.
“We’re excited to offer Prime members in the US free One-Day Delivery on more than 10 million items this holiday season,” an Amazon spokesperson said in a statement, “including millions of items from small- and medium-sized businesses who sell on Amazon.”
In addition to same-day shipping, Amazon and Walmart are trying to one-up each other in online grocery deliveries, in-store pickup and even in-home delivery.
If you can’t beat ’em, join ’em
Another tactic smaller e-commerce companies are employing is teaming up with the bigger guys.
Paul Trible, CEO and co-founder of men’s clothing site Ledbury, sells a small selection of 20 shirts on Amazon, so he can nab new customers looking for higher-end clothing. Fanatics does the same kind of thing by powering Walmart’s sports merchandise. (Fanatics also runs the CBS Sports online store, which is owned by CNET’s parent, CBS.)ne days to arrive. But offering guaranteed three-day deliveries increases his shipping costs from about $8 a package to $15. Next-day shipping would ruin his profits, so he doesn’t do it.
“It gets into people’s minds that this is the way commerce should be, but it’s not sustainable for most businesses,” he said.
Brandless, which makes lines of environmentally friendly luggage, cookware and toiletries, plans to bring its items closer to consumers by putting them in up to 10,000 stores by the end of next year — no word on which stores the company will partner with yet.
In the meantime, Brandless CEO John Rittenhouse, who once ran Walmart.com, says he wants to speak up about slower shipping as a positive for the planet, which he thinks will resonate with his environmentally conscious customers.
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