When Amazon announced about two weeks ago that Prime’s free two-day shipping was about to become Prime’s one-day shipping, it certainly got the world’s attention. The main and most alluring perk of Amazon Prime was free, two-day shipping on just about anything — and much of the last decade in eCommerce has seen other players tacking to that two-day standard.
The obvious question and the one that recurred most often was — now what? Will eCommerce as a whole have to pick up the pace with the new tempo Amazon is calling? For many players the news is too new, and the jury remains mostly out.
Mostly, but not entirely. Walmart already has its answer. In the ongoing and spirited race for the consumer’s whole paycheck, Walmart made clear it would be offering its response to free one-day Prime Shipping within days of the announcement — albeit a bit obliquely.
“One-day free shipping … without a membership fee. Now THAT would be groundbreaking. Stay tuned,” Walmart tweeted out.
We did, and this week the retailer got a lot more specific.
And that was only one of the highlights on this week’s reel.
Big Play of the Week: Amazon’s Invests In Employee Entrepreneurship
As part of its ongoing to efforts to enhance its in-house delivery network — and be less reliant on the likes of UPS, FedEx and the U.S. Postal Service — Amazon announced this week that it is offering employees up to $10,000 in startup costs to form their own package delivery businesses.
In a press release, the eCommerce giant said the new incentive, which is part of its Delivery Service Partner program, will in addition to startup costs cover the equivalent of three months of the former employee’s last gross salary. The idea is to enable employees-turned-business-owners to more easily get their package delivery businesses up and running.
“We received overwhelming interest from tens of thousands of individuals who applied to be part of the Delivery Service Partner program, including many employees,” Dave Clark, senior vice president of worldwide operations for Amazon, said in the press release. “We’ve heard from associates that they want to participate in the program but struggled with the transition. Now we have a path for those associates with an appetite for opportunities to own their own businesses.”
Those services will have an almost guarantee of delivery volume — thanks to Amazon — as well as access to the company’s delivery technology, hands-on training and discounts on a suite of services such as Amazon branded vans, uniforms, and comprehensive insurance. Amazon said the new incentive is another example of the company’s efforts to encourage employees to advance their careers.
Amazon as of today delivers its own orders in more than 37 cities across the U.S. Since launching the Delivery Service Partners program in June of 2018, Amazon said, it has enabled the creation of more than 200 new small businesses that have hired thousands of local drivers.
Automation Update: The Box Bots Are Coming
It looks like packaging machines may soon be on the table for Amazon’s warehouses. The machines would scan packages as they come off the conveyor belt and place them in custom boxes.
Called CartonWrap, the machines can pack 600 to 700 boxes an hour, which is four to five times faster than human workers. Running the machines requires one person to load the customer orders, another to stock cardboard and glue and a third technician to handle any jams.
The machines, according to reports, could net about 24 lost jobs at each warehouse; if the machines were rolled out in 55 of Amazon’s warehouses in the U.S., that would eliminate 1,300 jobs nationwide. Amazon insiders told Reuters this week the machines — worth about $1 million each — would pay for themselves within a year.
“We are piloting this new technology with the goal of increasing safety, speeding up delivery times and adding efficiency across our network,” an Amazon spokeswoman said in a statement. “We expect the efficiency savings will be reinvested in new services for customers, where new jobs will continue to be created.”
Sources told the news outlet that Amazon isn’t looking to reduce its labor costs by layoffs, but rather is aiming to become leaner through attrition. The idea is to eventually stop refilling vacated packaging jobs, which tend to have high turnover and take a toll on workers.
Amazon employees who stay with the company will be trained for other roles, according to the firm.
Power Pair-Ups: Adobe and Amazon Take On DTC
It looks like Adobe and Amazon are taking on the DTC wave among startups seriously — and are looking to ride the next wave of online shopping. The two companies announced a new program called Branded Stores for Amazon Sellers, which will help create “branded storefronts,” which aren’t necessarily websites, to interact with customers.
The vision is for small to medium-sized businesses (SMBs) that sell on platforms other than Amazon (but including Amazon) to build out their own customer experiences while still using the selling tools from the Amazon ecosphere. At present that will not include the ability to offer Prime benefits, though reports indicate that could change. It does cover Amazon Pay and hosting and fulfillment on Amazon Web Services (AWS).
Pricing for the service has not been announced, but it’s starting in North America with plans to expand to Europe. The news comes on the heels of Adobe’s announcement that it has added Magento updates featuring Amazon and Google integrations.
“We are excited to support the Branded Stores for Amazon Sellers offering from Magento, which builds on our long running collaboration with Adobe,” said Terry Wise, the VP of Channels and Alliances at Amazon Web Services. “Powered by AWS, this launch will provide sellers a seamless way to grow their business and scale for peak shopping periods.”
Big Play of the Week: One- Day Shipping Ships Out
As Isaac Newton famously noted, every action has an equal and opposite reaction — and it turns out the rules of physics can apply to retail at times as well. Walmart has announced it will be expanding next-day delivery to more areas in the U.S. as it races to keep up with Amazon Prime’s latest enhancement.
According to a report in The Wall Street Journal citing Marc Lore, head of U.S. eCommerce at Walmart, the retailer will start offering free next-day shipping this week for around 200,000 products for customers living in Phoneix, Las Vegas and Southern California. The paper noted more areas will get the free one-day shipping during 2019.
To be eligible, customers have to place orders of $35 or more. Orders are to be shipped in one box to address complaints from customers about receiving multiple boxes. Customers will only be able to choose next-day shipping if the product is in a warehouse that enables it to be shipped via ground, according to the report. As a result, Lore said, there is no “incremental investment we need to do to do next-day.”
Lore also noted the one-day delivery model actually lowers the cost per delivery. Shoppers can only buy items from warehouses close to their homes, and with the items arriving together, it reduces the costs.
The next-day delivery is also aimed at boosting Walmart’s eCommerce sales. While still small, it is fast-growing, with eCommerce sales in the U.S. increasing 40 percent in the fiscal year ended Jan. 31. The retailer has predicted online sales in the U.S. to grow about 35 percent in 2019, as as of its last earnings reports, Walmart is well on its way to meeting that goal.
And speaking of those earnings …
Bucking The Trend Lines : Walmart Earnings Win
Walmart better than expected earnings outcome for Q1 2019 ended up being this week breath of fresh air in retail, after a stacking series of negative reports.
By the numbers, Walmart reported net income of $3.84 billion, or EPS of $1.13, comfortably beating the $1.02 forecast. Sales clocked in slightly below expectations, however, at $123.93 billion versus the $125.03 billion expected. But same-store sales growth was solid, up 3.4 percent instead of the 3.3 percent forecast — and at its highest Q1 levels in nearly a decade.
Walmart also reiterated its commitment to roll out next-day delivery across the country, though it declined to put a specific figure on how much it will cost keep up with the Amazon-Joneses — past Marc Lore’s general statement that it wouldn’t be much of a cost.
Walmart’s increasing stable of private-label brands also got a special mention, with the retailer noting they have been critical in both boosting revenue and lowering margin costs.
The firm’s eCommerce sales grew by 37 percent, driven largely by apparel and home goods. It’s a better result than the 33 percent growth Walmart logged a year ago, and Walmart confirmed for its investors that it continues to target 35 percent eCommerce growth in 2019. That is is less robust than the 40 percent average it pulled out in 2018, but still pretty ambitious.
The retailer will also continue to expand and enhance its grocery pickup business and delivery offerings, and confirms it is on track to offer pickup for online grocery orders at 3,100 stores and same-day grocery delivery from 1,600 locations by the end of the year.
“We’re continuing our transformation to become more of a digital enterprise,” Walmart CEO Doug McMillon noted on the results.
There were, however, some gray clouds that continued bobbing on Walmart’s horizon during its call with investors — most having to do with the possibility of a looming trade war.
Worry of the Week: Uncertainty Over Traffic Troubles In The Future
Walmart is anticipating price increases as a result of the looming trade war between the U.S. and China, according to a report by Reuters.
Walmart Chief Financial Officer Brett Biggs said the increased tariffs on apparel and footwear will cause prices to rise, though Walmart will try to offset those increases and protect consumers as much as possible by attempting to get products from other countries and working with suppliers’ “costs structures to manage higher tariffs.”
“We believe Walmart has the wherewithal, both financially and via its vendor relationships, to minimize the impact on both itself and its shopping base,” Moody’s Analyst Charlie O’Shea noted, saying the tariffs’ effects on Walmart will be limited by its food business.
Greg Foran, Walmart’s U.S. chief executive officer, said the retail giant is going to keep its “low-price leadership” and try to “manage costs on an item-by-item basis.”
Still others are not so sure, as Walmart faces ever more avid competition, especially in grocery. Vendors like Del Monte Foods, which provides the retailer with items like mandarin oranges from China, will be raising their prices — and that will hit Walmart.
“It’s not just tariffs. Transportation costs are up, labor costs are up. It’s an inflationary environment,” said Del Monte CEO Greg Longstreet. “A lot of that’s going to have to be passed on. The consumer is going to have to pay more for a lot of critical goods.”
Biggs said despite the complications, he hasn’t seen any signs of a slowdown in consumer spending habits, which analysts and investors are predicting will happen eventually due to tariffs, debt and a slowing economy.
Ruh-Roh, as Scooby-Doo would say.
Whether the economy is slowing, and whether that slowdown will be pushed by a trade war remains to be seen.
But for this week, the name of the game is fast — who can pack boxes faster, deliver them quicker, get groceries to the customer more efficiently.
And, if past is prelude, it’s probably going to get a lot faster before it gets any slower.