Farhad Manjoo has an interesting article in Slate magazine about Amazon’s plan for same day delivery. Same day delivery will be made possible because Amazon has decided (not confirmed yet!) to invest in warehouses in large metropolitan areas in the country. Why invest in high cost warehouses now? Wouldn’t that strategy negate the price advantage of Amazon.com?
For a while now, Amazon has faced pressure from state governments to collect sales taxes. They have refrained from doing so by citing that there is no physical presence in the states. Amazon located its warehouses strategically in low-cost states and used these warehouses to ship to nearby states. But with eBay’s imminent plans for same day shipping, a clear picture emerges. Amazon has decided to collect sales taxes from residents of select states which enables them to have a physical presence in these states. So these warehouses can be used to ship products faster and Amazon is hoping that customers would pay the sales taxes for the convenience of shopping Amazon’s diverse products without leaving the comfort of their homes and still getting same day delivery.
Unlike Amazon that fulfills the orders itself from its distribution outlets, eBay is a platform aggregator for retailers. Brick and mortar retailers can use eBay as their platform to reach consumers who live nearby and they can easily provide same day delivery. This may prove detrimental to Amazon in the long-run. The interesting issue is whether Amazon’s intensive distribution model coupled with the sales tax collection will still provide them with the price advantage compared to the brick and mortar retailers. Would Amazon’s value proposition still be perceived as better? Or could this be the equalizer for big box retailers to get back in the fray? Interesting times are ahead.
Professor of Business Administration and
James F. Towey Faculty Fellow and
Executive MBA Academic Director