Amazon Moving to One-Day Delivery Guarantee for Prime Members

Update: Target and Walmart wasted no time in firing back at Amazon after the ecommerce giant announced last week it is moving to guaranteed one-day delivery for Prime customers over the course of the year.

“Today, Target guests have numerous ways to shop same-day and receive their purchases within hours,” Target said in a response. “We have a range of options that make shopping easy and convenient, including our in-store shopping experience and delivery from Shipt in nearly 250 markets. Our Drive-Up service is at more than 1,100 stores and Order Pickup services at all 1,850 stores – both free, no-membership-required services.”

“One-day free shipping…without a membership fee. Now THAT would be groundbreaking. Stay tuned,” said Walmart, hinting at a new capability in a tweet.

Both main competitors are well-positioned to counter Amazon’s one-day promise, given their vast network of stores and ecommerce fulfillment centers, as are many others like Best Buy, Costco, Home Depot and Macy’s. The battleground has also moved to same-day delivery in many major urban markets as “need it now” fever spreads among consumers.

Original story: No sooner had everyone mostly adjusted to the new normal of two-day delivery across the continental U.S. than Amazon raised the bar yet again, signaling a move to free one-day shipping for its 100 million-plus Prime members.

Brian Olsavsky, the company’s CFO, told analysts on the company’s Q1 call that Amazon will be transitioning to one-day Prime delivery throughout 2019, starting in the second quarter. He also said it would represent an $800 million investment in Q2.

“We have been offering, obviously, faster than two-day shipping for Prime members for years, one day, same day, even down to one to two-hour delivery for Prime Now,” Olsavsky said. “So, we’re going to continue to offer same day and Prime Now selection in an accelerated basis. But this is all about the core free two-day offer morphing or evolving into a free one-day offer.”

Olsavsky said Amazon has been expanding the number of items eligible for one-day delivery, as well as the number of ZIP codes, in recent months.

“It’s a significant step and it will take us time to achieve,” he said. “And we want to ensure that we have a good delivery experience for our customers as we evolve this offer.”

Olsavsky said Amazon’s network has been largely tuned to two-day Prime delivery, so a lot more capacity and supply chain work, as well as coordination with transportation partners, will be required to make one-day delivery a reality.

“We’re moving quickly and we’ve got a good head start,” he said. “There is a certain tranche that we can dial up quickly, and we’ve started to do that and you’ll see that very quickly in Q2. And then stay tuned, because we’ll be building most of this capacity through the year in 2019.”

Asked about the rationale of going to one day, Olsavsky said it was to offer more convenience and selection for Prime members.

Colin Sebastian, a managing director and senior analyst with Robert W. Baird, said Amazon isn’t reacting to the industry catching up with Prime’s two-day promise, but enacting something that’s been in the works for some time.

“Certainly their long-term goal is to be able to delivery any product to any human within an hour,” Sebastian said. “In classic Amazon fashion, they never say, we’ve reached this level of service, this is the finish line, now we can rest and reap the rewards. It’s a culture and business of continuous improvement. One day may be the standard for the next five years, but eventually it will be same day and further on, with drones and things, everything within an hour.”

Sebastian said making one-day delivery a Prime requirement will naturally cause a winnowing out of sellers and eligible products, although many have already been preparing, knowing this day was coming.

Competitors will do their best to match Amazon’s new service level, he said, for instance Walmart listing top-selling SKUs that can be fulfilled in a day from local stores.

“From a broader perspective, Amazon has continued raising the bar in terms of service expectations,” Sebastian said. “This is just another example of that in a long history, so from that standpoint it’s not a new situation for retailers to find themselves in.”

“We think that that will open up a lot of potential purchases,” he said. “We’ve been experimenting on a lot of different formats, two-day, one-day, same-day, two-hour, stores, there’s all types of points of being there for the customer, when they need us at different points in their consideration set. So, we really think it’s going to be groundbreaking for Prime customers.”

Michael Levin, partner and co-founder of Consumer Intelligence Research Partners, said he believed Amazon’s move was definitely a reaction to the fact that much of the retail and ecommerce world had caught up with two-day delivery.

“It will be hard for Amazon’s main competitors to ignore this,” Levin said. “It won’t be hard for them to generally offer it, but it will cost them something. The question is, will competitors offer it as credibly, effectively and cheaply as Amazon can? Probably not.”

Levin agreed that Amazon’s massive investments in logistics and delivery, especially in recent years, makes this upgrade much easier.

“However, Amazon has worked on these things massively not only because they wanted to offer one-day shipping but because it’s really core to its goals,” he said. “One-day shipping was just a fortunate consequence of that hard work.”

Aaron Wilcox, COO of airbrush makeup seller Luminess Air, said he didn’t expect most companies to rush after one-day delivery as the norm. He also questioned the degree of demand for one-day outside of large metro areas.

“It took years for most large-scale ecommerce and omnichannel companies to figure out how to adjust to two-day shipping,” Wilcox said. “I also suspect most companies are currently working on active projects and investments regarding their order fulfillment and delivery cycles so pivoting to an even faster delivery schedule feels like a challenge.”

Wilcox also wondered what companies Amazon will have “piggy-back on their delivery network at some point to maximize the investment.”

Michelle Alexander, senior operations manager of customer service and experience for QVC, said Amazon’s one-day move won’t make any immediate impact on its operations.

“We recognize Amazon will lead the industry in speed of delivery,” Alexander said. “Our goal remains to provide the best delivery based on our model at (QVC parent) Qurate and lean into the customer experience to gage customer loyalty.”

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