- Amazon has launched a part-time delivery service, Amazon Flex, that will allow people to deliver packages for the company on a part-time basis for a fee.
- The new service is quite similar to Uber's.
- The introduction of Flex demonstrates that Amazon has come of age as far as same-day deliveries go.
- The new service will offer a compelling reason for people to shop more at Amazon.
Amazon (NASDAQ:AMZN) has launched a new delivery service Amazon Flex, a part-time delivery driver network. The service has already launched in Seattle and the company says it will soon be available in Chicago, NYC, Dallas, and several other large cities. The service is part of Amazon’s wider same-day delivery service, but will at first be limited to Amazon Prime Now rapid delivery service for merchandise that needs to be delivered within 1-2 hours. Flex is a direct copy of ride-sharing company Uber’s same-day delivery service.
Why Is Amazon Has Launched Amazon Flex Now
Although Amazon has for long been the go-to online retailer for many people around the world it has usually lagged behind traditional retailers in one key department--delivering goods with the immediacy of picking up items at a local store. One of the biggest reasons why physical stores remain quite popular despite the convenience of online shopping is due to the immediate gratification that physical shopping offers. Indeed, it’s estimated that despite growing at a much faster clip than traditional brick-and-mortar stores, online shopping will constitute just 12.7% of U.S. retail sales in 2015. Online shopping is most popular in the U.K., but accounts for just 15.2% of retail sales in the country.
To bridge the gap between delivering goods from fulfillment centers to customers’ houses in a short time, companies like Amazon have been dabbling in same-day deliveries, a utopian retailing concept that involves delivering merchandise to customers’ locations on the same day they place orders. Amazon introduced same-day deliveries in 2009, and charged $5.99 for Prime members and $15 for non-Prime members. Amazon, however, offered the service on a very limited basis since it was only available in seven cities in the U.S.
Same-day deliveries presents perhaps the biggest logistical challenge for any retailer. Although early flameouts such as Kozmo and WebVan.com tested the concept more than ten years ago, it was not until quite recently that retailers had gathered sufficient knowledge about the service that it started taking off. One of the biggest challenges of same-day deliveries lies in how to control delivery costs. The early startups were saddled by huge delivery costs as they attempted to build a network of warehouses and hired fleets of drivers only for many customer to end up ordering small ticket items that hardly even came close to covering the cost of delivery.
Then there is the problem of what is ideal for same-day delivery and what is not. eBay (NASDAQ:EBAY) introduced its same-day delivery service--eBay Now--in 2012. The company, however, had to shut the service this year because it was not well-suited for its business model. Same-day deliveries makes sense when you are ordering diapers and groceries, but not used items and collectibles that eBay deals in. Moreover, many of eBay sellers sell their merchandise from their homes, which further compounds the logistical challenge.
Amazon, however, is well-suited for same-day delivery. The company has over the years built a huge network of warehouses and fulfilment centers. The company has also amassed massive swathes of valuable customer data that help it predict what customers are likely to order next. That Amazon has come of age as far as licking the same-day delivery dilemma became clear when the company expanded its same-day delivery mid-this year to cover 14 major metropolitan areas that cover hundreds of town and cities and also improved delivery terms and fees. Orders above $35 are now free while orders under $35 will cost $5.99 for Prime members and $9.98 for non-Prime members. Roughly a million items qualify for the expanded service.
By using Uber’s model of using part-time drivers, Amazon Flex offers Amazon a low cost way to rapidly expand its same-day delivery footprint. After all, Flex drivers will be paid a flat fee of $18-$25 per hour to deliver packages using their cars and smartphones. This way Amazon does not have to buy or hire delivery trucks or commit to a salaried workforce. Uber drivers are required to pay for their gas, and it’s quite likely that Amazon will adopt a similar approach. The new service will cost Amazon money, but it will give customers an even bigger reason to quit shopping in brick-and-mortar stores and shop at Amazon instead. With Amazon slated to sell apparel worth more than $27 billion in 2017 and in the process surpass Macy's (NYSE:M) as the #1 apparel seller in the country, perhaps the new service has come at just the right.