We’re not there just yet, but Amazon is getting closer. And, for a growing percentage of the US (and European) population it is already true.
According to a note published on Thursday by financial firm PiperJaffray, Amazon now has a warehouse or delivery station within 20 miles of 44% of the US population. That’s up from 38% in 2015 and 26% in 2014. (…)
“We believe this gives Amazon a critical competitive advantage now that it has acquired so many Prime users in the United State: same-hour and same-day delivery can structurally replace trips to the store,” PiperJaffray’s analyst Gene Munster wrote in the note.
Piper Jafffray believes that “roughly 80% of the US population could be within 20 miles of Amazon’s reach eventually”. The remaining 20% are to far off from metropolitan areas to make this sustainable, the analysts believe. Over the next 30+ years that number may turn out to be much lower than we think today. (Drone delivery and (close-to) fully automated warehouses that cover 90% of everday items (automatically dynamically stocked by (big data) demand analysis) will do the trick.)
But even so, lets assume Piper Jaffray’s assumption is right. Being the most convenient retailer for 80% of a given population is high enough to completely wipe out1 the alternatives. (And same-hour and same-day delivery combined with ordering via Dash buttons and Echo and Fire TV and smartphone app is more convenient than going to the nearby store. Even if that store is just down the street.)
One has to understand that for that to happen people don’t have to completely stop going to the stores. They just need to reduce their store shopping by a high enough percentage to bring down the traditional retailers like a house of cards.
This is the downside of scale effects: Once a retailer has reached a certain scale they can leverage that scale to, for example, get better prices at their suppliers. The insidious consequence of this is that after a short while the retailer ‘gets used to’ those scale effects. They incorporate them into their cost structure and business model. Because why wouldn’t you? After all, how could you lose that scale again? This doesn’t happen over night.
And surely, it does not. But losing the benefits of scale happens like in that old saying by Ernest Hemmingway about going bankrupt:
“How did you go bankrupt?”
Two ways. Gradually, then suddenly.”
Here is a visualization of how that ‘gradually, then suddenly’ looks like with Amazon, via Piper Jaffray:
- Amazon Plans to Start Drone Deliveries Within 5 Years “Somewhere in the World”
- Warehouse Robotics Startups are Going to Change What is Sustainable in Online Retail
- With the Rise of Online Retail, Rent Prices for Warehouses Start Rising as Well
- What Does it Mean Strategically That Amazon Robots cut “Click to Ship” Time From 1h to 15 Minutes?
‘Completely’ as in: any traditional retail that has no digital component at its core and is not suitable to thrive on Amazon’s Marketplace or any other digital marketplace. ↩