When Amazon announced plans to debut one-day shipping nationwide, analysts saw it as a risk/reward move. The risk was incurring incredible expense for the retailing giant without appropriate compensation. the potential reward was a spike in Prime membership.
It now seems like the rewards have overcome the risk.
Amazon is Smiling
One-day shipping has indeed been an expensive proposition. In April, the company predicted that the move to one-day shipping would cost the company $800 million. This week, they admitted that they had surpassed that. As a result of unexpected costs, the company exceeded their own projections.
“We saw some additional transition costs in our warehouses,” CFO Brian Olsavsky explained. “We also saw some costs for buying more inventory and moving inventory around in our network to have it be closer to the customers. And we’ve build that — not only that cost structure, but an accelerating cost penalty — into our Q3 guidance that was released with our earnings today.”
For that much cost, the reward would have to be significant. But industry analysts suggest that it is. GlobalData Retail’s managing director Neil Saunders told MarketWatch:
“Our data show that this has been popular and Amazon has picked up some new Prime members as a result and has captured greater share of those shoppers seeing convenience or needing a product urgently… In our view, neither of these constituencies is temporary, so Amazon has effectively succeeded in boosting its long-term share of the market.”
This is tremendous news for Amazon. They took a big gamble by moving to one-day shipping, but it now appears that gamble is paying off.
They will continue to dominate the online retail game, something that was beginning to come into question. With competition from Target, Wal Mart, and other companies, Amazon’s grip on the market was beginning to slip. But they’ve firmly grabbed a stranglehold again.