A recent Barron’s headline read, “What Amazon Will Destroy Next.” While that might be alarmist, it’s fair to ask, what will Amazon disrupt next? And with its latest actions, the company is getting closer to becoming a real challenger in two industries: delivery and apparel.
Through a new program called Seller Flex, Amazon will manage package delivery from third-party merchants to customers. While Bloomberg said this development doesn’t necessarily cut UPS and FedEx out, Wall Street’s reaction to the news, which caused shares for the delivery giants to tumble, suggests the move is expected to have negative effects on their businesses.
Seller Flex, which is in trials in the U.S. and has been operational in India for two years, would allow the retailer to save money, free up space at distribution centers and provide more products via free two-day delivery. It would also essentially expand the number of Amazon’s distribution centers to include all seller’s warehouses.
This newest service builds on Amazon’s network of fulfillment options like its relationship with the U.S. Postal Service, which handles last mile deliveries; Fulfillment by Amazon through which it stores, picks and packs sellers’ goods; and Seller Fulfilled Prime, which allows sellers to list under Prime and ship from their own warehouses.
Whether this is bad news for UPS and FedEx remains to be seen.
Speaking on the possibility that Amazon could squeeze these companies out, UPS CEO David Abney told CNBC in December that he doesn’t think that’s the case because “we have this huge infrastructure, we’re investing in technology, we have a great mutual relationship with them.”
In March, FedEx CEO Fred Smith was quoted as saying a move like that wouldn’t be a huge disruptor for his company given that 85 percent of its business is business to business rather than e-commerce. Echoing Abney, he said, “the FedEx system that consists of thousands of facilities and the ability to pick up, transport, and deliver in one to two business days between any two addresses in the United States has been decades in the making. And we think that we have not a great risk of being disrupted, to use the term.”
When you look at what The Wall Street Journal estimates to be 1,000 planes, 200,000 vehicles and 4,000 hubs worldwide between UPS and FedEx, it seems like it might be difficult to completely circumvent the two companies. But the amount Amazon spends on shipping isn’t trivial. Analysts estimate it costs the retailer an average of $7.81 per package to use one of these outside carriers—a number it could trim by $3 by handling delivery itself.
While the plan might be to use UPS and FedEx for Seller Flex, there are no doubt fears that Amazon might disrupt shipping like it’s doing with groceries after it gobbled up Whole Foods, where it eat into competitor profits in the first week. Simply by announcing price cuts, the e-tailer coaxed 10 percent of Trader Joe devotees and 8 percent of Sprouts regulars into Whole Foods’ doors, according to data analytics firm Thasos Group. It also nibbled at Target and Costco traffic.
Other big box and traditional grocery chains contributed large numbers of shoppers too. Twenty-four percent of Whole Foods traffic came from Walmart and 16 percent from Kroger.
Ultimately the cuts weren’t that numerous, particularly deep or long lasting, but the headlines alone created a shift in consumer behavior.
The fear, of course, is that Amazon can—with one decision—completely disrupt any industry it sets its sights on. That’s why the fashion industry is just one among many on edge as it awaits Amazon’s next move, especially since the e-commerce giant has made no secret of its apparel aspirations.
Yesterday, TechCrunch reported the online retailer acquired Body Labs, a company that claims to be able to create 3-D models of the human body off of a single photo. While the tech company said the applications could include fitness tracking and VR gaming, a technology like that could allow shoppers to more accurately figure out their sizes across brands but it could also be used to facilitate on-demand custom apparel, which would take Amazon’s private label to another level.
The new capability would dovetail nicely with Amazon’s new patent for an on-demand apparel manufacturing system, which was announced in April. The patent outlines plans for a system that prints and cuts fabric and assembles garments based on incoming orders, allowing for maximum efficiency.
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