September 2, 2016dsc_00853

By Andy Arvidson
on behalf of the DRMA Education Committee

The Rio Summer Olympics were exciting to watch on so many levels. The United States led the medal count with 121 total medals, 46 golds.  Michael Phelps, Simone Biles, Katie Ledecky, Simone Manuel, the women’s and men’s basketball teams and so many others shined for Team USA.  This medal rush reminds us of what Team Amazon has been orchestrating on multiple levels as they are leading ‘the e-commerce medal count’ and especially the gold rush.

Competitors such as Wal-Mart are entering the e-commerce gold rush late and making a sudden Usain Bolt dash to the finish line. Sarah Nassauer reported recently in the Wall Street Journal, “Wal-Mart signed a $3.3 billion deal to buy web retailer Inc., bringing in some outside help to jump-start growth at the retail giant’s e-commerce operations. The deal is the largest ever purchase of a U.S. e-commerce startup and a sign Wal-Mart Chief Executive Doug McMillon sees the shift to online shopping and the expansion of Inc. as existential threats to the company’s five decades of growth.”

Marketers and suppliers need to be cognizant of how Amazon is preparing for the future.  Amazon is many steps ahead of the competition and only Amazon knows those next steps.

Amazon is building its own delivery network to compete with UPS, FedEx, DHL and the Post Office in the long run, both domestically and internationally.  Amazon uses the former Airborne Express airport hub in Wilmington, Ohio for central operations and has leased approximately 40 planes.  Amazon introduced their first Prime Air branded plane last month in Seattle with Amazon emblazoned on the belly.  Amazon wants to control the supply chain process start to finish and this includes delivering orders.

Seattle Times business reporter Jay Greene wrote earlier this year, “Amazon wants to build out its own U.S. cargo operations to avoid delays from carriers such as UPS and FedEx, which have, at times, struggled to keep up with the rapid growth of e-commerce. This past holiday season, FedEx failed to deliver some Christmas packages on time, blaming inclement weather and a surge in last-minute holiday shopping. Two years earlier, it was UPS that struggled with the crush of holiday shipping. But Robert W. Baird & Co. analyst Colin Sebastian believes Amazon may be developing a delivery service that meets more than its own shipping needs. He expects Amazon to ultimately offer any excess cargo capacity it has to other companies looking to transport goods.”

It is logical for Amazon to spend shipping costs on its own delivery network. The revenues and profits are high in this arena. FedEx reported 2016 revenue of $50.365 billion. Amazon quietly has up to 4000 ‘green’ trucks for deliveries of groceries and other Prime items based on customers paying the yearly membership fee. Amazon could sell their delivery network services to selected companies who need their orders handled with premium care and not be one of thousands of customers with FedEx and UPS.  Amazon also has setup a spoke and hub system in Europe leasing planes for European direct to consumer delivery services.  Amazon is winning the gold medal on the drone delivery front and could offer a “Deluxe Prime” premium membership package to consumers within the next 3-5 years, subject to final FAA approvals.

Amazon is placing a higher priority on selling its own private label brands similar to what Costco does with its high quality Kirkland brand.  Amazon has the data analytics and buying patterns of all marketers selling products on Amazon. Marketers who rely heavily on revenue from Amazon sales should pay special attention. Fulfillment houses need to be aware of the impact of Fulfillment by Amazon (FBA) handling these orders.

It only makes sense for Amazon to focus on the higher profit products from its own private label products. The increased margin goes to Amazon. For example, a marketer sells a beauty product on Amazon for $40.00 with a manufacturing cost of $10.00.  Amazon receives approximately $4.00 or 10% margin for providing the service.  Amazon can have their own high quality beauty product and sell it for $38.00 with a manufacturing cost of $10.00 and net $28.00 versus only $4.00.

Will Amazon start its own ocean freight forwarding services from Asia where many of the products could be manufactured for Amazon private label? Will Amazon build manufacturing facilities in Asia?  Interestingly, Amazon even has its own space exploration program called Blue Origin Rocket Space Program. Will this lead to a “Prime Amazon Channel” to compete with QVC and HSN with enhanced satellite communications? Marketers and suppliers need to keep up with Amazon’s gold medal rush to make intelligent business adjustments.

Response Expo 2014