The world's biggest online retailer is making a big play to bolster their delivery speed, and it could be a major blow to brick-and-mortar. But don't count brick-and-mortar out yet.
The king of traditional retail, Wal-Mart Stores Inc. (WMT) posted second quarter earnings for 2013 on Aug. 15 and they were a big disappointment, as the brick-and-mortar company is fast losing ground to internet retailers like Amazon Inc. (AMZN) and eBay Inc (EBAY) . The company is trying to adjust to the sea change to the internet, and is working to fast move more and more of their sales online.
While traditionals like Wal-Mart lag in online presence, though, they more than make up for it in stores and potential shipping centers, which will prove to be an asset as they transition online. Wal-Mart has over 4,700 stores in the US, which means that once their internet business is up and running at full speed, they will have a distinct advantage in distribution over eBay and Amazon.
Amazon is responding by going on a massive warehouse building spree, constructing some 50 new distribution centers to more quickly move products. The company recognizes that speed will determine the winner of the online retail war, and the company that is able to deliver products the fastest will have a distinct edge.
Right now, Amazon can guarantee same day service to 15 percent of the population. If their “fulfillment centers” can fully saturate the US, they can bump that figure up to 50 percent.
Of course, another factor for Amazon to consider in addition to speed is price. While brick-and-mortar might not have the selection, they can still undercut online on price, as the shipping costs for Wal-Mart customers is zero.
The reliance on coupons is also helping brick-and-mortar. Best Buy Co. Inc (BBY) has seen huge gains this year by instituting price matching offers to directly compete with Amazon, and on Aug. 20 posted very impressive quarterly earnings.
Amazon can’t compete with brick-and-mortar and the price front. So they’re moving forward with inverstments in better tech, with more sophisticated warehouses that are, potentially, fully automated, with same day delivery available with just a few clicks.
But as Amazon is learning, being exclusively online is not without its drawbacks. On Aug. 20 the website went down for 45 minutes, which might have cost the company as much as $4.72 million in sales.
Amazon is up .98 percent on the day to hit $288.36 a share.
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