Amazon’s Free Shipping Casts Shadow Over Smaller Retailers

As Amazon rapidly expands its free shipping, retailers are struggling to compete, looking to a range of fulfillment companies to help offer faster, less expensive delivery options. Amazon Prime provides two-day shipping on millions of items found on its site. Shipping companies such as FedEx, threatened by Amazon’s reach, have targeted smaller businesses, from startups to midsized national chains, that can’t compete with Amazon, Walmart and other big retailers spending billlions of dollars to speed-up delivery.

The Wall Street Journal notes that it’s a “shift in strategy” for FedEx, “which until recently tailored their e-commerce services mainly to giant retailers needing to quickly process thousands of shipments a day.” Now the company is offering speedy service to even the smallest online companies that can’t afford Amazon’s same-day delivery service.

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“There is no universe where you can beat Amazon’s shipping prices,” said Radial chief product and strategy officer Stefan Weitz, whose company deals with online orders from “about two-dozen warehouses and clients’ stores.” “I don’t have to beat Amazon. I have to get close enough to provide a service level to my customers.”

Radial, created by private equity firm Sterling Partners, works with national chains such as Dick’s Sporting Goods and PetSmart, and creates efficiencies by using data “to determine where to keep inventory.” One of the largest shippers to use UPS’s ground service, it offers lower rates to retailers than they would get via Amazon.

FedEx has a new service dedicated to managing fulfillment for smaller retailers, with a distribution center in Indianapolis and, soon, southern California. It achieves two-day ground shipping that reaches 98 percent of Americans via “a technology platform” that distributes inventory across different locations.

ShipBob, a startup, has fulfillment centers in Los Angeles, Chicago and Brooklyn, and Red Stag Fulfillment has three facilities in Tennessee and Utah. These newer companies negotiate lower shipping rates by pooling orders, and use other techniques pioneered by Amazon. Amazon currently has 149 fulfillment centers worldwide, 75 of which are in North America. According to e-commerce company ChannelAdvisor, Amazon “handles less than 3 percent of client orders not placed on the site.”