On Sept 14, 2021, Amazon announced the hiring of 125,000 workers for 100 new distribution centers with wages of $18/hour and benefits. The pandemic fueled shift is only the surface highlight. Amazon is moving strategically to pull cash out of the pockets of retail competitors. Amazon and its Whole Foods subsidiary are poised to hurt competitors by increasing their labor costs to Amazon’s advantage, improving consumer convenience by reducing the need to physically shop, and featuring same day delivery increasing execution pressures on competitors who are not as efficient as Amazon fulfillment operations.
Staffing the 100 new distribution centers nationwide not only adds to Amazon’s already industry leading capacity but captures scarce labor sought after by retail competitors at the start of the 2021 Q4 hiring season. Amazon wages and benefits exceed local business and even its large retail competitors. For example, its $18 average wage far exceeds Walmart’s newly increased average wage of $16.40.
These new distribution centers add to an already sophisticated system of hundreds of fulfillment locations that also exploits the USPS as well as UPS (Amazon is the #1 customer for both) to offer rapid delivery. While competitive retailers hold a physical retail location advantage, Amazon will effectively blunt that advantage with their sophisticated supply chain systems. Amazon can “cherry pick” the last-mile delivery cities where ‘Delivered by Amazon” has the greatest cost and execution advantages while leaving the most expensive and hard-to-service areas to USPS and UPS.
Amazon stands to win the retail traffic battle as well. As Covid and holiday traffic congestion hampers retail rivals Amazon can increase delivery assets while managing costs. While Kroeger and Walmart have announced one day delivery goals, Amazon Fresh will be increasing its capacity and cost advantages. Fulfillment out of a retail store vs an automated warehouse will allow Amazon greater speed and lower cost.
More consumers than ever will choose delivery later that day instead of heading out to a local store in traffic. Wider delivery windows allow Amazon to manage order congestion better than small car-or-walking pickup areas in retail parking lots. Retailers using Insta-Cart for online ordering and fulfillment are hampered by inefficient ordering, picking, and logistics compared to Amazon.
Amazon’s strategy may also pressure its competitor’s bottom lines. Large big-box retailers use groceries to bolster online eCommerce sales volume whereas Amazon uses services like Amazon Fresh, Amazon Prime, and Same-day to pick off the most profitable volume from retailers. Using Grocery and local retail to drive sales, especially for one off or small purchases, truly become loss-leaders for other retailers. Amazon can use incentives (such as digital coupon goods with minimal costs) to change consumer behavior to the most profitable behavior on a demand basis – flexibility not available to big-box or Insta-Cart retailers.
Not to restate the obvious, but Amazon has a strategy in place to vacuum up cash in the retail marketplace.
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