Amazon’s ambitious new push for same-day delivery will destroy local retail.

[jimmy olsen]

Destroy is going a bit too far I think, but it will certainly cause Amazon to gain market share.

http://www.slate.com/articles/business/small_business/2012/07/amazon_same_day_delivery_how_the_e_commerce_giant_will_destroy_local_retail_.html

I Want It Today
How Amazon's ambitious new push for same-day delivery will destroy local retail.

By Farhad Manjoo|Posted Wednesday, July 11, 2012, at 5:53 PM ET

Amazon has long enjoyed an unbeatable price advantage over its physical rivals. When I buy a $1,000 laptop from Wal-Mart, the company is required to collect local sales tax from me, so I pay almost $1,100 at checkout. In most states, Amazon is exempt from that rule. According to a 1992 Supreme Court ruling, only firms with a physical presence in a state are required to collect taxes from residents. Technically, when I buy a $1,000 laptop from Amazon, I'm supposed to pay a $100 "use tax" when I file my annual return with my home state of California. But nobody does that. For most people, then, most items at Amazon are significantly cheaper than the same, identically priced items at other stores.

In response to pressure from local businesses, many states have passed laws that aim to force Amazon to collect sales taxes (the laws do so by broadening what it means for a company to have a physical presence in the state). Amazon hasn't taken kindly to these efforts. It has filed numerous legal challenges, and fired all of its marketing affiliates in Colorado, North Carolina, Rhode Island, and California. It also launched a $5 million political campaign to get voters to turn back the California law. And when Texas' comptroller presented Amazon with a $269 million sales tax bill last year, the company shut down its distribution center in Dallas.

But suddenly, Amazon has stopped fighting the sales-tax war. Last fall it dropped its repeal campaign in California and instead signed a deal with lawmakers to begin collecting sales taxes later this year. That was followed by several more tax deals—over the course of the next couple years, Amazon will begin collecting sales tax from residents of Nevada, New Jersey, Indiana, Tennessee, Virginia, and on July 1, it began collecting taxes from Texans. It also currently collects taxes from residents of Kansas, Kentucky, New York, North Dakota, and its home state of Washington. After all the tax deals go into effect, the company will be collecting taxes from the majority of its American customers.



Why would Amazon give up its precious tax advantage? This week, as part of an excellent investigative series on the firm, the Financial Times' Barney Jopson reports that Amazon's tax capitulation is part of a major shift in the company's operations. Amazon's grand strategy has been to set up distribution centers in faraway, low-cost states and then ship stuff to people in more populous, high-cost states. When I order stuff from Amazon, for instance, it gets shipped to California from one of the company's massive warehouses in Kentucky or Nevada.

But now Amazon has a new game. Now that it has agreed to collect sales taxes, the company can legally set up warehouses right inside some of the largest metropolitan areas in the nation. Why would it want to do that? Because Amazon's new goal is to get stuff to you immediately—as soon as a few hours after you hit Buy. (Disclosure: Slate participates in Amazon Associates, an "affiliate" advertising plan that rewards websites for sending customers to the online store. This means that if you click on an Amazon link from Slate—including a link in this story—and you end up buying something, Amazon will send Slate a percentage of your final purchase price.)

It's hard to overstate how thoroughly this move will shake up the retail industry. Same-day delivery has long been the holy grail of Internet retailers, something that dozens of startups have tried and failed to accomplish. (Remember Kozmo.com?) But Amazon is investing billions to make next-day delivery standard, and same-day delivery an option for lots of customers. If it can pull that off, the company will permanently alter how we shop. To put it more bluntly: Physical retailers will be hosed.

Can Amazon pull it off? It's sure spending a lot of money to try, and it has already come up with a few creative ways to speed up deliveries. In each of the deals it has signed with states, the company has promised to build at least one—and sometimes many—new local warehouses. Some of these facilities are very close to huge swaths of the population. Amazon is investing $130 million in new facilities in New Jersey that will bring it into the backyard of New York City; another $135 million to build two centers in Virginia that will allow it to service much of the mid-Atlantic; $200 million in Texas; and more than $150 million in Tennessee and $150 million in Indiana to serve the middle of the country. Its plans for California are the grandest of all. This year, Amazon will open two huge distribution centers near Los Angeles and the San Francisco Bay Area, and over the next three years it might open as many as 10 more in the state. In total, Amazon will spend $500 million and hire 10,000 people at its new California warehouses.

But Amazon isn't simply opening up a lot of new shipping centers. It's also investing in making those centers much more efficient. Earlier this year, it purchased Kiva Systems, a company that makes cute, amazingly productive "picking robots" that improve shipping times while reducing errors. Another effort will allow the company to get stuff to you even faster. In Seattle, New York, and the United Kingdom, the firm has set up automated "lockers" in drug stores and convenience stores. If you order something from Amazon and you work near one of these lockers, the company will offer to drop off your item there. On your way home from work, you can just stop by Rite Aid, punch in a security code, and get your stuff.

All these efforts seem to be paying off. I'm a frequent Amazon shopper, and over the last few months I've noticed a significant improvement in its shipping times. As a subscriber to Amazon's Prime subscription service, I'm used to getting two-day shipping on most items for free. But on about a third of my purchases, my package arrives after just one day for no extra charge. Sometimes the service is so speedy it seems almost magical. One Friday afternoon last month, I ordered three smoke alarms, and I debated paying extra for shipping so that I could install them over the weekend. The $9 per item that Amazon charges for Saturday delivery seemed too steep, though, so I went with standard two-day service. The next morning, the delivery guy arrived with my smoke detectors. I'd gotten next-day Saturday service for free. I have no idea how Amazon made any money on my order (the whole bill was less than $30) but several people on Twitter told me that they've experienced similarly delightful service.

If Amazon can send me stuff overnight for free without a distribution center nearby, it's not hard to guess what it can do once it has lots of warehouses within driving distance of my house. Instead of surprising me by getting something to me the next day, I suspect that, over the next few years, next-day service will become its default shipping method on most of its items. Meanwhile it will offer same-day service as a cheap upgrade. For $5 extra, you can have that laptop waiting for you when you get home from work. Wouldn't you take that deal?

I bet you would. Physical retailers have long argued that once Amazon plays fairly on taxes, the company wouldn't look like such a great deal to most consumers. If prices were equal, you'd always go with the "instant gratification" of shopping in the real world. The trouble with that argument is that shopping offline isn't really "instant"—it takes time to get in the car, go to the store, find what you want, stand in line, and drive back home. Getting something shipped to your house offers gratification that's even more instant: Order something in the morning and get it later in the day, without doing anything else. Why would you ever shop anywhere else?

[Tamas]

http://www.youtube.com/watch?v=EZ15vUjgqvw

[Josquius]

Next day delivery is wonderful. I finally realised why my stuff comes so darn cheap the last time I put an order in- they've a distribution centre in the town next door.

Still...call me a luddite but...the decline of the high street is a major issue. The better internet shopping gets the more dire the high street's situation gets.

Another effort will allow the company to get stuff to you even faster. In Seattle, New York, and the United Kingdom, the firm has set up automated "lockers" in drug stores and convenience stores. If you order something from Amazon and you work near one of these lockers, the company will offer to drop off your item there. On your way home from work, you can just stop by Rite Aid, punch in a security code, and get your stuff.

Why do you need a special locker? (incidentally I neer saw one in England). In Japan they just ship it to convenience stores and you pay and pick it up there.

[Tamas]

Still...call me a luddite but...the decline of the high street is a major issue. The better internet shopping gets the more dire the high street's situation gets.

http://www.youtube.com/watch?v=EZ15vUjgqvw

[Josquius]

You've just posted the same link again.

[Monoriu]

I already do my grocery shopping online, and I already get them on the same day.  It isn't going to destroy retail.

[Tamas]

You've just posted the same link again.

yes because it fits the point

Change in market conditions should not scare anyone, as it is the benefit for everyone, even if there are short term disadvantages involved for some people.

[Josquius]

You've just posted the same link again.

yes because it fits the point

Change in market conditions should not scare anyone, as it is the benefit for everyone, even if there are short term disadvantages involved for some people.

This is not the case however.
For customers from purely a shopping POV it is quite universally a good thing.
But consider- less people will need to be employed in retail and the death of a town centre has much worse effects than there merely being nowhere to go shopping there anymore. The high street is about more than shops, its the heart of a community, lots of cafes and bars and other places there too. It is the main street of the town and used by everyone in some way. It has a big impact on the community.
Its a complicated issue.

[Monoriu]

This is not the case however.
For customers from purely a shopping POV it is quite universally a good thing.
But consider- less people will need to be employed in retail and the death of a town centre has much worse effects than there merely being nowhere to go shopping there anymore. The high street is about more than shops, its the heart of a community, lots of cafes and bars and other places there too. It is the main street of the town and used by everyone in some way. It has a big impact on the community.
Its a complicated issue.

Delivery systems employ people too.  You need people to work in the warehouses, to drive the stuff around, and to deliver the goods. 

Also, I fail to see how you can prevent Amazon from doing this.  It doesn't involve a complex decision.  It is going to happen. 

[Tamas]

cafes and bars will remain. Or change.

This has been an ongoing process for millenias now, and we end up being all the better by it. for example, you don't have to go to the shoemaker guy down the street to get your shoes anymore, yet the community survived.

Of course the businesses badly affected by this will cry but you should not subscribe to their doom an gloom visions over this.


Plus what Mono said.

[Martinus]

I already do my grocery shopping online, and I already get them on the same day.  It isn't going to destroy retail.

Me too.

[Josquius]

cafes and bars will remain. Or change.

This has been an ongoing process for millenias now, and we end up being all the better by it. for example, you don't have to go to the shoemaker guy down the street to get your shoes anymore, yet the community survived.

Of course the businesses badly affected by this will cry but you should not subscribe to their doom an gloom visions over this.
.

That was different. That was the death of one or two shops on the high street, with plentiful other physical shops cropping up to replace them.
Here we're talking about a complete and total revolution in the system. The very notion of the high street being wiped out unless some solution can be thought up (I've no idea what one could be)

Will cafes and bars survive? Amidst a shuttered up street where nobody wants to go a lonely cafe will still be able to get business?
I can certainly see a place for streets that are nothing but the night time economy (such places already exist) but for the daytime...its hard to see how they can survive.

Delivery systems employ people too.  You need people to work in the warehouses, to drive the stuff around, and to deliver the goods. 

Not as many as shops employ. See the part in the article about warehouse robots too...

Also, I fail to see how you can prevent Amazon from doing this.  It doesn't involve a complex decision.  It is going to happen. 

Never said we could/we should and it wouldn't.

I already do my grocery shopping online, and I already get them on the same day.  It isn't going to destroy retail.

Because a lot of people have yet to get wise to this even being possible.
Give it a few decades though....

[Tamas]

The more and more people will switch to online shopping, the more and more people online retailers will employ. Storage clerks, customer support, administration, IT, software developers, service management, couriers...

[Monoriu]

Hey, you never know.  If there are fewer shops out there selling commodities, rent for retail space may go down.  This may encourage more retail shops that sell personal services and high-end products to enter the market. 

[Eddie Teach]

The more and more people will switch to online shopping, the more and more people online retailers will employ. Storage clerks, customer support, administration, IT, software developers, service management, couriers...

I'm skeptical that the numbers would offset the losses of the brick & mortar stores.