Dive Brief:
- Amazon will transition the standard shipping time for Prime members from two days to one day over the next year, said Amazon CFO Brian Olsavsky on the company's first-quarter earnings call Thursday.
- Olsavsky said this move is a natural evolution of the Prime program. "We've already started down this path," he said. "We've, in the past months, significantly expanded our one-day eligible selection and also expanded the number of zip codes eligible for one-day shipping." Amazon currently offers one-day, same-day and 1-hour to 2-hour shipping (through Prime Now) on select items.
- Initially, Amazon is allocating $800 million for the transition. "We're able to do this because we spent 20 plus years expanding our fulfillment and logistics network, but this is still a big investment and a lot of work to do ahead of us," Olsavsky said.
One Day is the new Two Day...Game on. ????????????????????????????????????????????????????????????????????????????????????????????
— Dave Clark (@davehclark) March 19, 2019
Dive Insight:
Amazon's transition to one-day shipping will test the company's technology and logistics mettle. Olsavsky emphasized the necessity of third-party logistics partners to execute one-day shipping, while also saying the internal logistics capability Amazon has developed is essential.
The balance of logistics partners and internal logistics development has become a compulsory part of Amazon's earnings calls as the company's actions arouse suspicion of its intentions to become a full-blown 3PL itself.
"I would say, we're going to be using all of the available levers that we have right now, both AMZL and also third-party carriers, and we'll just see how it develops going forward. But we're going to need definitely continued support of our external transportation partners," Olsavsky said.
Amazon Prime free two-day shipping has been the north star of e-commerce fulfillment since it began in 2005 and helped push the rest of the field, and the 3PLs that support them, to fulfill and deliver faster.
Olsavsky said Amazon received more Prime signups in 2018 than any year prior, so the program is clearly resonating with consumers. Raising the bar is about convenience, he said, and convenience is about sales.
It may also be about competition. Competitors in just the last year have risen to the two-day challenge — including Walmart and Target — and alternative options like buy-online pickup in-store and same-day delivery services may be making those two days seem longer than they used to. The move to one-day shipping will put Amazon a full day ahead of the competition.
It also gives the Prime shopper yet another shipping option on an ever-growing list that now includes "no rush," and options to reduce the number of shipments arriving in exchange for slowing ship times, which includes the recently launched Amazon Day option.
Adding 1-day shipping as the default, combined with all the other shipping timelines on offer from Amazon can also be seen as the latest element in a move toward letting the consumer pick their exact delivery day. Though many customers will choose the fastest possible option, this is just one option on a very long list now. Tom Enright, vice president of retail supply chain research at Gartner, thinks the precision of picking a specific day may eventually overshadow the desire for the soonest possible delivery.
The Prime shift will roll out zip code by zip code and SKU by SKU starting with North America in Q2 2019.
"There is a certain tranche that we can dial up quickly, and we've started to do that and you'll see that very quickly in Q2," Olsavsky said. "And then stay tuned, because we'll be building ... most of this capacity through the year in 2019."
