Amazon Adds Lockers: But They’re Not for Working Out!
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Pretend for a moment that you live in busy New York City, home to more than 8 million other people all clamoring for space. And then the inevitable happens – your TV remote breaks. What do you do?
You’re a savvy shopper, so you’d never buy another remote in Manhattan. That would be too expensive. So you hop onto Amazon.com (NASDAQ: AMZN) and order the replacement. But ah! You live in an apartment building with hundreds of other people, and you do not want your brand new TV remote to sit outside your door until you return back from work at 9pm. What do you do?
You visit the local 7-Eleven to pick up your shipment. Amazon has already sent you a locker code that will allow you to pick up your remote from one of its lockers, and it holds your item for a few days.
Sound too futuristic? It’s already here.
Amazon is stealing a play right out Wal-Mart’s (NYSE: WMT) playbook – having customers order online and then pick up their merchandise at a retail outlet. Wal-Mart has been particularly good with its “free shipping site-to-store” mantra, and it does not need to worry about thieves stealing packages from its customers’ doorsteps. In fact, Wal-Mart has been boosting its online presence over the past year so that it can sell more product from the web - particularly so that it can compete against Amazon's online powerhouse of products.
And it’s about time that Amazon calls this audible. Companies like UPS (NYSE: UPS) and Fedex (NYSE: FDX) charge retailers a major mark-up – sometimes as high as 20% – to ship product to residential areas. Both UPS and Fedex have lower costs when they can deliver a large quantity of packages to one location, preferably a business.
Amazon is painfully aware of these charges. Amazon watched as its shipping costs jumped 44.5% in one year, from $941 million in Q2 2011 to $1.36 billion last quarter. Yes, it’s time to act.
Will these two shipping firms be upset that Amazon is bypassing their residential delivery service? Hardly. FedEx and UPS were just granted access to enter China's massive shipping market. The market size was $5.1 billion in 2010, but FedEx forecasts that number to rocket 400% to more than $26 billion within the decade. Look for the two shipping giants to spend increased attention in Asia's growing market.
Amazon also has other cost savings with this new locker model. When customers know where their package is and do receive it, they are less likely to jump to a competitor to buy a replacement item or to call Amazon’s call center for assistance. In this way, Amazon can start to either freeze or trim down its number of call center reps.
More in the Pipeline
I love Amazon’s idea. Jeff Bezos is often on the forefront of innovation, and once again, he does not disappoint. Expect to see more of these storage spaces popping up in urban cities throughout the United States.
Right now Amazon has approximately 50 lockers throughout San Francisco, Washington, D.C., New York, Seattle, and the U.K, where it is adding more lockers every week. Also, the Seattle-based company has been using the U.K. as a testing ground for Collect+, its shipping service that places packages in newsstands, train stations, shopping centers, and convenience stores for customer collection. Collect+ could be a new technology that would either steady or reduce Amazon’s shipping costs, even as the firm sells more products.
And the time for testing is now. The Chinese market will be maturing over the next decade, but most Chinese do not live in areas that can easily accept packages. By testing and deploying its fulfillment center approach now, Amazon is effectively opening itself up to the massive Chinese market. And that market is one that Amazon definitely does not want to miss.
So the next time you fret because one of your apartment necessities breaks, no worries - Amazon will send it to your secure locker.
ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services recommend Amazon.com, FedEx, and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.