Amazon.com, Inc. (NASDAQ:AMZN) has been rapidly expanding its warehouses and fulfillment cents in a bid to take over the delivery retail market. The online retailer is even expected to move toward having its own drivers rather than using United Parcel Service, Inc. (NYSE:UPS) and other delivery carriers. However, it’s facing increasing competition from Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG), which wants to take a chunk out of Amazon’s business.
Fulfillment becomes big business
So does Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) present a credible threat to Amazon.com, Inc. (NASDAQ:AMZN)? Not yet, according to Jefferies analysts Brian Pitz, Brian Fitzgerald and their team, but they warn that Google could be a key player in the future.
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In a report dated May 6, 2014, they highlighted a number of factors why they believe fulfillment is becoming so important to businesses. First, mobile is “blurring the lines between online and offline.” In addition, they say local is turning out to be the “new battleground in commerce.” Third, they say the online sales tax will shut down the price advantages currently enjoyed by online retailers.
Because of these factors, they see shipping and fulfillment choices as becoming “a differentiating feature” for both online and offline retailers.
Google expands Shopping Express
Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) recently expanded its Shopping Express service into Manhattan and West Los Angeles. The company had been internally testing the service in the San Francisco Bay Area since October 2012. Then it rolled the service out to just a few testers for six months starting in April 2013. Since then, the service has expanded a couple of times, but it isn’t yet a threat to Amazon.com, Inc. (NASDAQ:AMZN), according to the Jefferies analysts, who say Amazon still rules the roost.
Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s Shopping Express basically allows users to buy items which are in stock at local retailers without leaving Google’s page. Then they just choose a delivery window, and a courier from Google delivers the items. New subscribers to the service receive a free six-month membership for unlimited same-day delivery from a number of major brands and retailers.
At this point, it’s assumed that users will pay for the service after the trial ends, however, Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) is still working out the details. The company must evaluate the economics and has not yet provided pricing or it. Some possibilities include an annual fee—which is what Amazon.com, Inc. (NASDAQ:AMZN) does with its $99 a year Prime service—of $64 to $69. Another possibility is a $4.99 charge for delivery, per store and per delivery.
Amazon still wins, for now
The Jefferies team still sees Amazon.com, Inc. (NASDAQ:AMZN) as the winner in fulfillment and same-day delivery. They cited its massive warehouse footprint, access to Kiva and other top technologies, the ability to use its digital assets to manage changes in demand, and current partnerships with delivery companies.
Reports have indicated that Amazon.com, Inc. (NASDAQ:AMZN) has been testing moving the last mile of order deliveries in house since earlier this year. The online retailer also recently revealed a feature which allows users to add items into their carts right from their Twitter Inc (NYSE:TWTR) fees using the hashtag #AmazonCart whenever they see a tweet with a link to a product on Amazon.
Same-day delivery competition ramps up
At this point, they say it’s unclear just how much consumers will be willing to pay for same-day delivery. However, they believe the demand exists and that competition among the major players is becoming increasingly intense. They estimate that same-day and next-day shipping will push a reacceleration in unit growth for Amazon.com, Inc. (NASDAQ:AMZN). They also note that while some retailers are still concerned about selling products through Amazon, the company could end up being their best partner.