Walmart already faces challenges going head-to-head with Amazon in the third-party marketplace business because it doesn’t offer fulfillment services.
Today, Amazon extended that edge by announcing that it will offer same-day delivery in select cities. In addition to offering better service for Amazon customers, this will increase the advantage Amazon holds over Walmart’s recently-launched third-party e-commerce store – the ability to improve its customer service efforts through features like premium fulfillment.
Shoppers will have to pay up for the same-day delivery service (anywhere from $6 to $15). But given the cost to delivery this service, the fees make sense. Here is how it benefits Amazon:
- Incremental revenue from extra fees paid for the service (assuming this more than covers the extra operational expense, which we believe it does).
- Improved customer service, especially around the holiday shopping season, which leads to a lot of last minute shopping.
- More incentive for businesses to sell through Amazon versus other e-commerce sites.
The effort doesn’t come without its risks though, which primarily revolve around execution. Same-day delivery requires a new level of inventory management and coordination among fulfillment centres. As a result, if it is executed poorly and shoppers are unhappy it could inadvertantly hurt Amazon. Still, we believe the company wouldn’t have launched the service if it hadn’t been prepared. And it can always end the service if it becomes unmanageable (though clearly with some egg on its face).
With a limited number of fulfillment centres around the country, Amazon will likely not be able to offer same-day service across the US unless it opens up new centres. Here is a list of current fulfillment centres Amazon operates. The cities with same-day delivery announced today are all close to one of them.
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