Costco has launched a new online grocery shopping service, which will offer two-day delivery nationwide. There’s only a small delivery fee, but that’s a little misleading because the list prices for the items ordered in this way will be 15-17% higher than prices customers would encounter in stores. The irony here is that Costco’s stores are in some ways very much like warehouses, and therefore offer many of the same cost benefits as actual warehouses, meaning that e-commerce doesn’t provide many savings in that department, while shipping for the bulk items Costco typically sells would be disproportionately expensive. It would certainly be more transparent for Costco to be explicit about shipping while keeping the prices the same, but it’s likely banking on consumers making the same assumptions they make in its stores, namely that buying in bulk is always cheaper, without actually checking prices. That’s a tougher sell online, though, where comparison shopping is only a browser tab away. In other words, all this feels like a box-checking exercise against Amazon rather than a serious attempt to actually sell many groceries this way, which makes you wonder whether it’s worthwhile at all. Meanwhile, Amazon’s massive logistics advantage just continues to grow.
Amazon Forces Refund Changes on Angry Sellers (Aug 2, 2017)
eBay: Yes, speedy shipping really is a thing with us – CNET (Mar 20, 2017)
eBay is announcing that it now offers guaranteed 3-day shipping on 20 million items, compared to Amazon Prime’s two-day shipping for over 50 million items. The difference in the range and timing here highlights another big difference: whereas Amazon increasingly controls its logistics infrastructure, eBay has very little control at all, which is why it’s been reluctant in the past to commit to delivery dates even though it says almost two thirds of its sales already reach customers in three days. That’s because eBay buyers are responsible for shipping their own goods, while Prime and Fulfillment by Amazon leverage the company’s massive distribution infrastructure including an increasingly deep investment in its own shipping. Yes, eBay is making progress here, but it’s going to be hard for customers not to notice both the difference in the number of items and the speed of delivery and spend their money accordingly.
Yet another story about Amazon’s deepening investment in shipping infrastructure (see also ocean liners). Its Prime Air freight investment is an existing strategy, but Amazon is leasing the planes and has been using existing hubs, whereas this new $1.5 billion investment is to create its own hub in Kentucky. Amazon’s claim that it isn’t looking to compete with UPS gets harder to believe all the time.
Walmart is going after Amazon Prime with free two-day shipping and no membership fee – Recode (Jan 31, 2017)
Walmart is making two changes to its free shipping program: eliminating the $49 annual fee, and lowering the minimum purchase amount that qualifies for free shipping from $50 to $35. This doesn’t give the impression of Walmart coming from a position of strength, but rather one of weakness, where it has to keep making concessions and changes to try to make its equivalents to Amazon’s Prime service look more enticing. Of course, there’s also an argument to be made that Amazon’s Prime service works so well psychologically precisely because it has a hefty annual fee – once you make that commitment, you’re more likely to purchase lots of things through the site to justify and make use of the money already spent. Removing the membership fee means that users have no special reason to prefer Walmart over Amazon for any given purchase. At this point, I don’t think many people are choosing Amazon for shipping alone – they likely just think of Amazon as the default option for online retail, and if they happen to be Prime members (which many American households are) that seals the deal. Short of going all-in on free shipping a la Zappos, I’m not sure that any changes Walmart makes to its shipping policies and prices will move the needle meaningfully.