Ecommerce is evolving at a rapid pace, in large part thanks to Amazon. Ten years ago, a two-hour delivery via drone would have just been a scene out of ‘The Jetsons.’ Today, especially when shoppers are quarantined due to COVID-19 and are increasingly ordering online, getting critical items fast is a life-changing necessity.
But Amazon didn’t do this in a day. In 2018, Amazon’s share of the U.S. e-commerce market hit 49%. By 2019, the majority of its revenue came from retail third-party seller services. After years of investments in the logistics space, Amazon has grown beyond retail into a bona fide logistics provider all its own.
Between Amazon’s promises of one-day delivery and constant investments in its logistics infrastructure, Amazon is constantly increasing customer expectations and raising the bar for delivery speed. But how was Amazon able to build this infrastructure? And how does it impact eCommerce fulfillment and the customer experience everyone else?
We’ve put together a timeline of events that explain the Amazon logistics machine and how it has changed customer expectations.
2012-2017: Laying the Groundwork for Evolving Customer Expectations
During these years, Amazon laid the groundwork for eCommerce fulfillment efficiency. Amazon added trucks, freight, planes, and even ocean shipping. But even more relevant was the consumer-facing end of Amazon’s delivery. These were the early days of Amazon experiments that would shape the market we know today:
Key Developments in 2015-2017
- Increased warehouse resources: In 2012, as Amazon expanded its warehouse across the U.S., it acquired KEVA Robotics for $775M. Amazon’s ability to automate picking, packing, and stowing shipments increased its network efficiency.
- Same-day delivery: In May of 2015, Amazon launched its free same-day delivery program. The program would start in 14 metropolitan areas across the U.S. How ambitious was this program? At the time, Wired called it a “gambit to own all of retail.”
- Prime Now: “Is logistics about to get Amazoned?” asked TechCrunch at the time. Prime Now meant that if products were available at nearby warehouses, Prime members could expect delivery within hours, not days.
- Logistical upgrades: The period from 2015 to 2017 would see Amazon making investments in their infrastructure. That included twenty leases for 747 jets in early 2015, registering as a “freight forwarder” in China, and registering a subsidiary company with the U.S. government as an ocean shipping provider.
With these actions, Amazon changed the customer expectations forever. Free shipping is “far and away the top reason people shop at Amazon,” according to 80% of respondents in our survey ‘Last Mile Delivery Wars.’ In 2015-2017, Amazon laid the tracks for expanded programs like Prime Now and same-day delivery. The model — “fast and free” — would eventually change everything for shoppers.
2018: Beyond Retail, Beyond AWS, Amazon Becomes a Logistics Provider
In 2018, we learned that Amazon wanted to go beyond supplementing its supply chains. 2018 confirmed that the company’s goal was to create its own logistical moat:
- “Amazon Logistics” launched. No more innuendo and leaked memos. Amazon officially launched Amazon Logistics in 2018. By now, its fulfillment and shipping expenses had reached $34 billion and $27 billion respectively. In 2007, they had only been $1 billion each.
- Changing expectations materialize. In our Last Mile Delivery Wars survey, Convey noted Amazon’s effects. Customer expectations for last mile delivery ballooned. From 2017 to 2018, the number of customers who would choose faster shipping times as their most critical delivery concern increased by 52.2%.
2018 was the year that Amazon widened its moat. Wayfair also saw the retail landscape shifting and made heavy investments into its own delivery service. The large-item furniture retailer built its own supply network of furniture “shipped directly from a network of more than 7,000 suppliers.” It was a crucial bet. Wayfair’s revenue “jumped to $2.25 billion,” nearly doubling its previous year. [Learn about how Wayfair built a business designed to survive the retail world Amazon created.]
2019: Amazon’s Logistics Machine Becomes a Bigger Piece of the Pie
By the end of 2019, Amazon’s logistics started to reach their potential. Amazon wasn’t just increasing its share of its logistics anymore. It became responsible for the majority of its last mile deliveries.
- One-Day Delivery. After years of investments, Amazon could point to bottom-line results. Its second-quarter results showed a “significant rise” in its one-day shipments in North America.
- Market share materializing. “There is no doubt that Amazon reigns supreme over market share,” we wrote in 2019. “With Amazon now throwing free one-day delivery into the mix, do other retailers risk losing customers if they can’t keep up in this race to the bottom?”
- Shifts in consumer trends. As we noted, 81% of shoppers at this point would buy at least 10% of their goods online, an increase of over a third over 2018. Shoppers were moving online. Amazon positioned itself to deliver “fast and free” as often as possible. We also noted that “demand for one-and-two-day delivery” skyrocketed to the tune of 92.8% increase from 2018 to 2019.
By the end of 2019, customer expectations only continued to increase. Shoppers bought goods more often online. The number of shoppers who bought most of their goods online increased.
As Amazon’s logistics machine expanded, demand for fast delivery skyrocketed. Over 9 out of 10 survey respondents noted that the delivery was at least somewhat important to their shipping experience. And as we’ll see in the next section, last mile delivery considerations are starting to take precedent in the way your retail brand is perceived.
2020 and Beyond: Amazon Wins When Customers Want Great ‘Free’ Delivery
Amazon has done two things: it’s changed the landscape of customer expectations, and it’s delivered on those expectations. The effect of the last mile delivery experience is so powerful that even those with negative opinions of Amazon continue to shop there.
Additionally, keeping delivery promises has become more important in 2020. In our 2019 consumer survey, “reliable” delivery and deliveries that “arrive on time” were also important for customers. It’s possible to compete with Amazon’s logistics machine so long as the last mile delivery experience is there.
How to Compete in a World of Changed Expectations
While Amazon is providing ‘fast and free’ delivery, it’s also providing those services with resources that other retailers can’t afford to have. With companies like Amazon and Wayfair building their own logistical moats, other retailers need to expand their own delivery investments to compete.
How do smaller retailers fight back on logistics when Amazon has its own logistics company? It starts with getting access to better data. Convey Discover, for example, helps increase on-time deliveries by over 25%. Grove Collaborative also improved its customers’ last mile delivery experience through last mile visibility. The net effect? It improved AOV (Average Order Value) by 50%, and it reduced service claims, the cost per damage claim, and the cost per incorrect address. [Learn how Grove used Convey Recover to improve NPS by 9.4% in just 6 months.]
You may not have your own fleet of 747s shipping your goods around the world, but every retailer should have access to real-time data. Keep track of supply chain trends such as delays, eCommerce fulfillment times, and more with our Network Pulse Dashboard.