By Tonya Garcia, MarketWatch
Amazon.com Inc. is transitioning to free one-day shipping, faster than the previous two-day promise to Prime members, a move that analysts think indicates just how much the competition has accomplished in its efforts to catch up to the e-commerce giant.
Amazon’s /zigman2/quotes/210331248/composite AMZN -0.59% Chief Financial Officer Brian Olsavsky announced the move to one-day shipping on the first-quarter earnings call, saying that the company had set aside $800 million to spend on the effort in the second quarter. The company will continue to offer same-day and Prime Now one-hour delivery as well.
“[W]hile our 20-year head start in investments in logistics and fulfillment capacity and partner networks that we’ve built are helping us, we also do have a network that is tuned to two-day delivery right now,” Olsavsky said, according to a FactSet transcript. “So we do need to build out more one-day capacity along with our transportation partners.”
Analysts see the move as a good one despite the price tag as it maintains the convenience edge Amazon has over its competitors in e-commerce. But it’s also an indication that all of the investment and effort that competitors like Walmart Inc. /zigman2/quotes/207374728/composite WMT -0.18% , Target Corp. /zigman2/quotes/207799045/composite TGT -0.54% and others have made to improve their own online operations is working.
“We believe the move is consistent with Amazon’s long-standing goal of convenience and selection, but also likely reflects the increasingly competitive retail environment,” wrote J.P. Morgan analysts, who rate Amazon shares overweight and raised their price target to $2,200 from $2,050.
John Zolidis, president of Quo Vadis, notes that Walmart and Target still have the benefit of same-day pickup, and Target has same-day delivery through Shipt. While one-day shipping will be even more enticing to existing Prime members, he says the other players shouldn’t be discounted.
“[I]t would be a mistake to sell large retailers on this announcement as they have anticipated this for some time and are already rolling-out corresponding services,” Zolidis said in a statement. “Further, we believe that a total offer that gives consumers the option to get product when and where they want it, either at home or in the store, is superior to a delivery-only option.”
Nevertheless, Walmart stock is down 2.2% in Friday trading, and Target shares have slumped 6%.
Amazon’s stock edged up 0.7% in morning trade, after the company reported late Thursday earnings that doubled, to well-above expectations, while revenue rose in line with forecasts.
GlobalData Retail data shows that both Walmart and Target have lifted their share of shoppers over the past three months, Neil Saunders, managing director, wrote in a note. Nearly three-quarters of those shoppers (72%) are also Amazon regulars.
“While this should not be taken to mean that Amazon is losing all their spending, it is clearly losing a share of wallet among some segments of the population,” Saunders said. “As much as this is offset by gains elsewhere, it is extremely unhelpful to growth. In our view, the trend is only likely to accelerate going forward and it will put Amazon under more competitive pressure than it has seen before.”
By jumping out ahead with one-day standard shipping, Amazon is once again raising the competitive bar just when other retailers and brands thought they were on to Amazon’s logistical game.