The Prime Effect

How Amazon’s two-day shipping is disrupting retail. The quest to offer fast, free delivery has triggered an arms race among the largest retailers.

Amazon is already making up most of the US ecommerce sales. However, they rely heavily on 3rd party sellers. These sellers experience major pain related to shipping cost and time. Fast shipping is now an expectation, but it is expensive for most sellers. Sellers often limit fast shipping to veru=y samll items or to local addresses. This limits their buy box opportunities.

Alongside life, liberty and the pursuit of happiness, you can now add another inalienable right: two-day shipping on practically everything .
Amazon.com Inc. has made its Prime program the gold standard for all other online retailers, according to surveys of consumers. The $119-a-year Prime program—which now includes more than 100 million members world-wide—has triggered an arms race among the largest retailers, and turned many smaller sellers into remoras who cling for life to the bigger fish.

In the past year, Target Corp. , Walmart Inc. and many vendors on Google Express have all started offering “free” two-day delivery. (Different vendors have different requirements for no-fee shipping, whether it’s order size or loyalty-club membership.)

Optimizing Prime

Amazon’s shipping infrastructure isn’t used just by Amazon. As shoppers who read the fine print know, it’s also available to its retail partners through its Amazon Marketplace. Of the top 10,000 sellers on Amazon—collectively representing about half of Amazon’s Marketplace revenue—at least 90% have one product in the Fulfillment by Amazon program, says Juozas Kaziukėnas, chief executive of Marketplace Pulse, a business-intelligence firm focused on e-commerce. Almost 70% use it to stock and ship at least half of their products, he adds.

Competitors Great and Small

Amazon’s nominal competitor in online retail, Walmart, also offers a marketplace for third parties to sell their goods; the big difference is, it doesn’t assist them with fulfillment—and forbids them from using Amazon’s fulfillment services.
Scale is essential. Mom-and-pop shops and even midsize retailers can no longer assume buyers will put up with getting their goods days later via the U.S. Postal Service. In response, startups are trying to aggregate enough retail customers that they can offer the all-important fixed rates for nationwide two-day shipping.

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