Amazon once again demonstrated their propensity to make bold, innovative investments. During the company’s first-quarter earnings report, CFO Brian Olsavsky announced that Amazon plans to invest $800 million into their Prime delivery program. Currently, Amazon offers free two-day shipping as a standard to its Prime customers. With this new investment, Amazon is working to reduce the shipping time in half, making it free one-day shipping for all Prime members.
According to Olsavsky, Amazon will be allotting the $800 million investment toward improving warehouses and delivery infrastructures. Olsavsky also reported that they would use “all of the available levers” to convert their shipping standard from two-day to one-day delivery. This includes working with existing partners, like the U.S. Postal Service and UPS.
Boosting Consumer Growth & Stickiness
While it is quite a pricey investment, Amazon is hoping that this new move will drive sales. RBC Capital Markets explained, “This IS Big News, if you believe in Shipping Elasticity, which we do. The faster you ship, the more people buy. . . .” “Shipping elasticity” is a new term that describes the idea that if a company offers faster shipping times, the greater the consumer demand and spending will be.
In a world where instant gratification is expected, this theory makes sense. Consumers already enjoy the comfort and convenience of shopping from their own homes. Being able to receive their shipment faster makes shopping from home even easier and more enticing. Additionally, with Amazon’s latest announcement that customers will be able to process returns at Kohl’s department stores, shopping through Amazon offers a smoother retail experience for consumers.
How Investors & Competitors Are Responding
Consumers aren’t the only ones happy with Amazon’s latest investment. Fellow investors and partners are also pleased with the new $800 million plan. J.P. Morgan’s Doug Anmuth said, “We believe the move is consistent with AMZN’s long-standing goal of convenience & selection… we come away with more confidence in Amazon’s ability to stabilize & potentially accelerate revenue growth.”
Wallstreet analysts expect that this new move will jolt Amazon’s e-commerce competitors, forcing them to up their game. They will need to make more aggressive investments in order to compete with Amazon’s expedited shipping. As competitors invest more to keep up with Amazon, Amazon can enjoy the profits of their reformed Prime delivery program.
What It Means for Sellers on Amazon
Sellers that use Amazon Prime can rest assured that their products will be taken care of at the warehouse. Amazon plans to pour a portion of their $800 million investment into enhancing warehouse practices. This means efficiently making packaging, labeling, and shipping products, too.
Amazon’s decision to shorten Prime shipping from two days to one day is sure to attract more customers, boosting the company’s overall earnings and revenue. It also promises to help increase sellers’ profits as customers receive and enjoy their products faster.
For additional questions for what one-day shipping could mean for your business, reach out to our Amazon experts.
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