With this blog, we welcome our newest contributor, Dr. Barry Berman, Distinguished Professor of Business at Hofstra University's Zarb School of Business. Barry writes about pricing, customer loyalty, product proliferation, data mining, and more. Today, he writes about shipping and pick-up issues for retail competition related to Amazon's new delivery lockers... Amazon's newest marketing initiative, Amazon Locker, is aimed at Amazon customers who prefer to buy goods online, and then pick-up these items at a local store location near their home or work. After ordering goods online, Amazon Locker customers are E-mailed a code that enables them to open a designated locker at a store location chosen by the consumer. Amazon now has about 50 locations for this service, writes Greg Bensinger in his Wall Street Journal article, "Amazon's New Secret Weapon: Delivery Lockers".
Amazon's Locker strategy appeals to two different market segments: "worriers" and "convenience seekers." Worriers do not want packages in front of their door for fear that they will be stolen or an indication that no one is home. In contrast, convenience seekers prefer picking up Web purchases at a local supermarket or convenience store close to home (at any time they wish) as opposed to a far-away branch location. The local store pickup is especially appealing to customers that have purchased goods from retailers that do not have a national presence or a convenient location close to their home or work. Walmart, for example, has few store locations in major urban areas that can be used by Walmart.com purchasers located there.
How can a click-only retailer, or a retailer with a poor store presence in given geographic areas compete against Amazon Locker? One strategy is for these retailers to develop a strategic partnership with logistics providers like United Parcel Service (UPS). UPS and others (like OnTrac) have delivery service capabilities, conveniently located customer pickup locations, and easy-to-use return facilities. UPS, for example, has 25,000 store locations (4,700 of which are independently operated UPS stores, 13,000 authorized shipping outlets, and 6,300 alliance locations) for convenient pickup and return of goods. While UPS outlets are typically open limited hours, on the plus side, customer returns are greatly facilitated. All the customer needs is to provide a return authorization number to the UPS person after the box is opened in the UPS store and the customer ascertains it's not what they anticipated. UPS may value such a partnership with these retailers due to increased delivery, item pickup, and return shipping fees, as well as added store traffic.
The success of Amazon Locker will also spur other firms to create pickup location drop-off points based in convenience stores and supermarkets that are open on a 24/7 basis. These retailers can view the logistics vendor like a leased department is viewed by a department store. Like leased departments, the pickup locations can provide additional revenue from rental income (mainly in quiet, "dead areas" of their stores) as well as increased store traffic.
Drawbacks To Having Local Pickup Stations
One caveat to the use of pickup locations for Amazon and other online retailers is that state tax authorities may view pickup locations as a "physical presence" for the online retailer in their state. States can require online retailers to collect state sales taxes in states where they have a physical presence. The loss of the sales tax price advantage is especially critical in states like Indiana, Mississippi, New Jersey, Rhode Island and Tennessee where the state sales tax (not counting local taxes) is 7 percent or higher. Some online retailers may choose not to have pickup locations in these high sales tax states.
What do you think about the ramifications of Amazon Locker for online retailers??? How do you feel competitors will respond to this initiative??? Thanks. Barry Berman