Retail: Amazon Pursues Cheaper Goods and Faster Shipping
August 29, 2013
Earlier this week, we reported that Amazon may be expanding its AmazonFresh service to the New York City area. Amazon has more than 209 million active users that purchase all type of products, from TVs to pet food, and the company has expanded its services and processing centers in order to build loyalty and become a single source for all shopping needs. Its strategy has led to a growing customer base and significant increases in sales.
The company has bought several competitors, in addition to a robot manufacturer to increase the speed of warehouse processing time. The company operates 89 order fulfillment centers globally, with more to open.
Amazon’s annual sales have increased to $61 billion. Last year, the total e-commerce sales passed $1 trillion, and the company accounts for five percent of that total.
The company’s growing dominance is more about how it sells, rather than what it sells, reports Fast Company. Amazon offers multiple ways to buy and receive packages, such as “1-Click Ordering” for easy buying, “Subscribe & Save” for regularly schedule purchasing, the “Lockers” program in which metal cabinets lets customers pick up their order, and “local express” or same-day delivery in select cities.
Amazon Prime is the company’s premiere membership service that offers additional perks and services such as fast shipping and access to streaming video, with an average Prime user spending $1,224 per year, $700 more than regular users. There are approximately 10 million users, an increase from five million two years ago.
“Prime is phase one in a three-tiered scheme that also involves expanding Amazon’s local fulfillment capabilities and a nascent program called AmazonFresh [same day grocery delivery],” explains Fast Company. “Together, these pillars will remake consumers’ expectations about retail. [CEO Jeff] Bezos seems to relish the coming changes.”
The company has invested heavily to reduce the order processing time by using technology and different inventory management methods, and is expected to open more centers in major urban areas. “What you see happening is that we can have inventory geographically near major urban populations,” explains Bezos. “If we can be smart enough… have the right technology, the right software systems, machine-learning tools — to position inventory in all the right places, over time, your items never get on an airplane. It’s lower cost, less fuel burned, and faster delivery.”
AmazonFresh may be designed for larger purpose, an attempt to change monthly customers to weekly or better. “Think of the synergy between Prime, same-day delivery, and Fresh,” says Tom Furphy, a former Amazon executive who launched Fresh. “When all of those things start working in concert, it can be a very beautiful thing.”
“As Amazon evolves into a same-day delivery service, its active transportation fleet could become yet another competitive advantage,” notes the article. “By supplementing its long-term relationships with UPS and FedEx with its own Fresh trucks, Amazon may well be able to deliver faster than retailers that depend entirely on outside services.”
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