Thursday, July 12, 2012

Amazon's emerging strategy: Same-day delivery

Slate's Farhad Manjoo has written an article that explains Amazon's recent change of tactics over sales tax. For several years, Amazon did everything it could to avoid collecting state and local sales taxes, including filing suit against states, cutting off affiliates, threatening to close distribution facilities, and offering to build facilities in states in order to avoid collecting sales tax. In the last year, however, Amazon has begun to agree to collect sales tax on a state-by-state basis, and is even building distribution facilities in many of those states. (In some states, Amazon is getting development funds and tax incentives to build and operate its warehouses.) So why the change in tactics, when it means that Amazon is giving up a significant price advantage?

Based on an analysis of Amazon's strategy done by the Financial Times, Manjoo writes that Amazon's new strategy is to build warehouses near every major metropolitan center, improve their efficiency using Kiva Systems' technology (Amazon acquired the company earlier this year,) and offer same-day delivery to most of its customers. Manjoo believes that this strategy will enable Amazon to offer the same "instant gratification" that consumers get from going to local brick & mortar stores, with the advantage that they don't need to leave their homes or places of work. He also believes that this ties into Amazon's test of automated lockers in 7-Eleven stores and other 24-hour retail outlets in Seattle, New York and the U.K., where consumers can have their packages securely delivered and stored, and then pick them up on the way home from work. (It also ties into Amazon's test of groceries in Seattle, which is another application for same-day delivery.)

Manjoo believes that brick & mortar retailers are deluding themselves if they believe that forcing Amazon to collect sales tax will put them on an equal footing.
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