Amazon Expands Same-Day Delivery, With Fees
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Amazon Expands Same-Day Delivery, With Fees, While Battling Slow Growth
Company invests in ultrafast delivery as it also tries to trim expenses
Amazon.com is focusing on delivering packages in less than a day to shoppers who have more fast-delivery options than ever.
By Sebastian Herrera, WSJ
Feb. 26, 2023 5:30 am ET
Amazon AMZN -2.42%decrease; red down pointing triangle.com Inc. is expanding ultrafast delivery options, a sign that it remains committed to pushing its logistics system for speed as it scales back plans in other areas.
The tech giant is continuing to devote resources to facilities and services structured to deliver packages to customers in less than a day. The expansions are happening at a crucial point for Amazon, which faces competition for fast-delivery options while Chief Executive Officer Andy Jassy puts a renewed focus on profits.
A central part of Amazon’s ultrafast delivery strategy is its network of warehouses that the company calls same-day sites. The facilities are a fraction of the size of Amazon’s large fulfillment warehouses and are designed to prepare products for immediate delivery. In contrast, the larger Amazon warehouses typically rely on delivery stations closer to customers for the final stage of shipping.
Amazon has opened about 45 of the smaller sites since 2019 and could expand to at least 150 centers in the next several years, according to MWPVL International Inc., which tracks Amazon warehouse operations. The sites have primarily opened near large cities and deliver the most popular 100,000 items in Amazon’s catalog, MWPVL said. New locations recently opened in Los Angeles, San Francisco and Phoenix, according to Amazon, which declined to provide information on how many of the same-day sites it has.
With ultrafast delivery, the tech company is seeking new ways to use its broad logistics apparatus to compete with the likes of Walmart Inc. and Instacart, which also provide quick shipping options to customers. Walmart has used its thousands of stores to help fulfill fast online orders.
Analysts say Amazon’s service can help the company retain users of its $139-a-year Amazon Prime subscription, which also provides streaming, discounts at Whole Foods Market and other perks. Amazon’s fast-shipping service can add fees for small orders.
“We’re always exploring ways to bring our customers new levels of convenience and delivery options that work best for them. Same-Day Delivery is one of the latest innovations,” an Amazon spokeswoman said, adding that more than 1.5 million customers a month are trying same-day delivery for the first time.
The costly nature of fast shipping is a challenge. Amazon uses contractors to make deliveries from the same-day sites. “Last mile” costs to deliver items from the locations can be around $3.30 a package, compared with $1.75 for packages at its traditional fulfillment sites, according to MWPVL. Using same-day sites can eliminate other costs that apply to the company’s standard fulfillment system, MWPVL said.
Ultrafast deliveries can arrive in a matter of hours, although Amazon charges members of its Prime subscription service a fee of $2.99 per order if customers don’t meet a $25 threshold.
“They need volume to make it work,” said Marc Wulfraat, president of MWPVL.
With ultrafast delivery, Amazon is trying a new way to use its logistics advantage to compete with new options from store retailers.
As Amazon expands ultrafast shipping across the country, some customers are experiencing the option for the first time.
Kristin Whitehair, a customer in the Kansas City area, first saw the option earlier this month when shopping for electric-toothbrush heads, which she wanted as soon as possible. She ordered the heads in the morning and received them in the evening.
“If I have a same-day need, I will now look at Amazon’s app, where in the past I may have to go to Target or another store,” Ms. Whitehair said. She said she doesn’t mind paying the extra fee if needed because she sees it as a premium service.
Amazon executives recently reiterated their commitment to quick shipping. Chief Financial Officer Brian Olsavsky this month said that the company aims to expand its fast-shipping services and that Amazon Prime subscribers respond well to them.
Amazon remains in one of its toughest stretches in its history. Mr. Jassy, the CEO, has focused on costs as sales have slowed from a record-breaking period during the pandemic. The company also has seen sales weaken at two of its main earnings drivers, the cloud-computing unit Amazon Web Services and its advertising business.
“They’re being squeezed in a way they have not been before,” said Andrew Lipsman, an e-commerce researcher at market-research company Insider Intelligence. “Andy Jassy has to thread the needle for the next four quarters.”
Amazon’s first-party e-commerce growth was essentially flat in 2022. Analysts estimate that the company’s share of e-commerce sales has flattened after years of growing rapidly, and that growth for Prime subscriptions has stalled. Amazon recently laid off more than 18,000 employees and has sunset a number of projects including its AmazonSmile charitable program.
While businesses have slowed, Amazon has also made efforts to become more of a services provider. Independent merchants make up most of its sales, and the company is expanding its Buy with Prime program, which offers merchants the ability to offer Prime shipping outside of Amazon’s website.
Investment firm Morgan Stanley in January estimated that Buy with Prime could eventually add $3.5 billion in yearly profit, not accounting for interest and taxes.
Write to Sebastian Herrera at email@example.com