Monthly Archives: May 2014

Amazon and Google’s billion-dollar race to kill the mall

drone eerie

So news broke yesterday that Amazon has posted job listings for its much-derided drone delivery service. What seemed a few months ago like a futuristic whim may be getting traction, at least if you are a software engineer or communications professional willing to join “Amazon Air” in San Francisco. Soon, Amazon will be dropping packages you order from the sky within a half-hour of your click.

Same-day delivery, whether by airborne robots or regular trucks, is gathering steam. FedEx now offers same-day delivery in 50 states for packages under 150 pounds. A company called SameDayDelivery (.com) professes to specialize in the service, with 50,000 vehicles and air freight racing from coast to coast, although you have to fill out a lead form to get a price quote. And Google Shopping Express will nab you goods from REI, Toys R Us, or Staples, provided you live in San Francisco or a few other special urban areas.

While the press focuses on the cool factor of heli-robots, the real question is — what would all this do to brick-and-mortar retail? Crush it, of course. If same-day delivery scales, the nightmares of the first Internet bubble in which pet food companies worried about Internet disintermediation will become reality. Simply put, when you can click your way to a particular product and have it on your doorstep or office desk within minutes, why would you drive to the mall? Same-day shipping will reboot all the “channel conflict” challenges of the late 1990s.

Most retailers would secretly love to kill their stores

Channel conflict, at core, means any company faces an internal conflict if, say, it can sell a shirt for $50 at the mall and the same shirt for $50 online. Both shirts must have the same price point, to keep customers using both channels, mall and online web store. Companies selling shirts keep both stores and websites running, because they know customers want both. But the shirt at the mall may incur $20 in retail rent and overhead costs, while the shirt shipped to the home may eat up only $2 in shipping. That 90% cost difference means this shirt-maker would love to push more products through the web, and fewer through malls, creating a “conflict” within its competing delivery “channels.”

Yep, you guessed it. While most goods can be delivered more cheaply via Internet orders than store stocking, retailers keep the real stores open because consumers love to touch and feel goods in physical space … and Internet orders usually take 2-3 days, killing impulse purchases.

But same-day delivery? If you could go to any website now and get that new watch or dress in 30 minutes, wouldn’t you be tempted? This near-instantaneous consumption revolution will push huge traffic to online retailers, and cannibalize the old-fashioned stores at your local mall. As Internet retailers push same-day delivery, consumers will flock around the portals that can remember their preferences the best. It’s no wonder Amazon and Google are investing in tests of this type of same-day service. Huge retail dollars, and the preceding online search or other ad revenue, are at stake. Physical stores will never go away entirely, but even a moderate shift from brick-and-mortar to cyber-insta-delivery would put billions of dollars into the winners of flying robots and speeding trucks. In 2012, only 5.4% of all U.S. retail sales were made online. Imagine what Google or Amazon could make by doubling that.

If you thought buying pet food online was a silly 1999 Internet bubble concept, perhaps you just had to wait a few years.