Amazon claims its second annual Prime Day was its biggest sales day ever, but shopping cart glitches and less-than-mindblowing sales estimates deflated high expectations for a holiday that the world’s largest retailer made up simply because it could.
The company said orders for that sale, open only to Prime members, rose 60 percent worldwide and 50 percent in the US on Tuesday compared to Prime Day 2015. The event was the company’s single biggest sales day for Amazon devices. And third-party sellers saw orders nearly triple year-over-year, Amazon said.
But the company did not provide Prime Day’s total sales, making it hard to know exactly how successful it was. Instead, it offered qualitative descriptions: “Prime members have voice shopped with Alexa, purchasing enough toilet paper to span to the International Space Station,” Amazon said yesterday.
The company did reveal that Prime Day 2015 accounted for 2 percent of Amazon’s third quarter growth—about $400 million in additional revenue. That’s nothing compared to the $14 billion Chinese e-commerce giant Alibaba earned with its own invented holiday, Single’s Day, in November—though it isn’t quite a perfect parallel to compare the entire Chinese consumer market to Amazon’s customer base of Prime members.
As with last year, customers had complaints—particularly with adding items to their shopping carts. Still, Amazon’s stock rose 6 percent in the week following last year’s Prime Day. This year, shareholders didn’t settle for anything less than exceptional. During Prime Day, Amazon shares hit a new intraday high of $761. Today, the day after Prime Day, stocks are flat, trading at $745 as of this writing.
In a city already already comically crowded with well-funded startups promising to deliver your next meal, today is not a happy day: Amazon just announced it’s ramping up its one-hour Prime Now food delivery service in San Francisco.
That’s right: San Franciscans who already enjoy unlimited two-day shipping and video streaming for $99 a year can now also get food from 117 local restaurants delivered in about an hour. Available in 33 zip codes across the city, the service is Amazon’s biggest rollout of Prime Now food delivery to date, the company says.
Prime members place their orders through Amazon’s standalone Prime Now app, which also offers one-hour delivery of a wide range of everyday products. Aside from the Prime subscription fee, food delivery comes with no additional markups or fees. Amazon is also guaranteeing that people will pay the exact same price as is listed in restaurant menus. If you spot an item that’s priced higher on an online menu within 24 hours of placing the order, Amazon says it will refund you the price of your order.
At first blush, launching food delivery in San Francisco, where the field is already stuffed with rivals, might seem daunting. There’s Caviar and Munchery, Postmates and Sprig. Even Uber has jumped into the food delivery game.
But Amazon may be in a unique position to succeed. If its food delivery service works as well as Prime Now does for other products, Amazon already has an efficiency engine that seems tough to top. As a company that’s built its fortune on logistics, Amazon can seemingly just flip the switch to bring any new item into its delivery infrastructure.
The company first introduced Prime Now restaurant delivery in Seattle last September. Today it’s live in eight cities across the country, including Portland, Los Angeles, Chicago, and Austin. While Amazon hasn’t guaranteed that food delivery will be free forever, at the moment it’s yet another perk that could rope customers into a Prime membership. In the end, getting more and more people hooked on Prime is exactly what Amazon wants.
Amazon wants you to go Prime. It wants this so much that if you still haven’t signed up for Prime’s well-known deal—free two-day shipping plus unlimited video streaming for a $99 a year—the company is making it hard to get any kind of a deal on shipping at all.
This morning, Amazon raised its free shipping minimum to $49 for its non-Prime customers for most products. That’s up from $35—the first time it increased the minimum order requirement since 2013. At least one category isn’t affected, though: book orders only need to hit $25 to qualify for free shipping.
The company isn’t offering an explanation for raising its order minimum, but one obvious rationale is to push even more customers towards a Prime subscription. Not that the retail giant isn’t doing well on that front: In its last quarterly earnings report, Amazon revealed that paid Prime membership had increased 51 percent worldwide and 47 percent in the US in 2015. At the same time, Amazon’s shipping costs grew 37 percent to $1.8 billion last year—one of its biggest expenses.
Amazon is getting more aggressive with its shipping and delivery initiatives. It’s ramping up its one-hour delivery service, Prime Now. And it’s reportedly building out a global delivery network that could ultimately put Amazon in complete control of the flow of goods in its supply chain, from factories in China and India to last-mile delivery to customers’ homes.
But of all the elements of its logistics strategy, Prime is still Amazon’s biggest asset. Now the company is nudging customers even closer to a place where it doesn’t make sense to use Amazon without going Prime. For anyone who shops on Amazon even just a few times a year, it’s an obvious deal: fast, free shipping, plus extras like great original shows. And if that carrot doesn’t work, Amazon seems to be saying, maybe the $49 minimum-order stick will.
Peter Wynn Thompson/AP for Amazon
You’re about to see Amazon-branded big-rigs out on the highway, driving between the company’s sprawling warehouses.
Amazon has long shunned profits in favor of growth, and over the past 20 years has poured resources into building a massive logistics infrastructure—much of it kept hidden from public view. The idea, which Amazon has discussed before, is to have that blender you ordered appear on your doorstep as if by magic.
That “magic” is a highly coordinated system that includes vast fulfillment centers, aka warehouses, across the country and around the world; an army of warehouse robots, human couriers and other employees who number in the hundreds of thousands; and, soon, drones. Now, Amazon is adding trucks. At an event today in Chicago where employees packed 2,000 care packages for soldiers abroad, the company announced that it is rolling out thousands of tractor-trailers to make deliveries even more efficient.
Those trailers won’t be schlepping stuff to customers’ doorsteps, though. Instead, they’ll move all the crap you order between its warehouses and shipping centers. The company will continue working with all of its trucking partners, who will use their own trucks to haul Amazon-branded trailers.
This comes at a pivotal time for the Empire that Bezos Built. In its last two quarters, Amazon actually saw a profit—suggesting the truckloads of money it’s dumped into its logistics network are finally paying off. Customers, meanwhile, are starting to think of Amazon as the place to do online shopping. A recent survey from Survata found 44 percent of respondents searching for products online went directly to Amazon. Over the Thanksgiving weekend, e-commerce date company Slice Intelligence found Amazon was the clear leader on Black Friday, accounting for a little more than one-third of e-commerce spending and absolutely trouncing Best Buy, Macy’s, and Walmart (3.35 percent).
Amazon obviously wants to continue this momentum, so gaining ever more granular control over its logistics makes sense. Last year, the company had package delivery troubles after a late surge in holiday sales, in part because UPS and FedEx capped air express deliveries. Amazon may even eventually want to cut those players out entirely and make deliveries itself, something it’s seemingly testing by using couriers in its Amazon Prime Now program, which delivers items in as little as an hour.
So even if the news isn’t as exciting or flashy as drones, it shows that, when it comes to moving goods, trucks remain essential.
Drew Kelly for WIRED
Amazon is hiring a bonkers number of temporary employees this holiday season, so that you can be absolutely sure the blender or coffee mug you’re sending to your great-aunt gets there in time for Christmas. Instant gratification for everyone!
The world’s largest online retailer is creating 100,000 seasonal jobs, it announced today with a press release. That’s up 25 percent from last year, when Amazon hired 80,000 temporary workers, and it doesn’t include the more than 25,000 full-time workers Amazon already hired in the US in recent months. According to The Wall Street Journal, it’s also more than the number of seasonal workers Target (70,000), Macy’s (85,000), and Wal-Mart (60,000) each hired in anticipation of the retail world’s busiest time of year. Unlike Amazon, these companies are reportedly holding steady on their seasonal hires this year.
Plus, Amazon continues to expand its infrastructure in support of its massive logistics goals for this holiday season. According to calculations from ChannelAdvisor executive chairman Scot Wingo, an analyst who tracks Amazon closely, Amazon has expanded to 173 facilities worldwide, up from 155 warehouses last year. That helps the company shrink those crucial delivery times and costs down to as small a margin as possible.
“Other retailers are going to struggle to come close,” Wingo writes in a blog post. “They do not offer nearly the same level of selection and efficiency that Amazon’s logistical network provides.”
A New Narrative in Retail
That’s the prevailing narrative: e-commerce is still experiencing crazy growth, while traditional retail struggles to keep pace. The US Department of Commerce recently estimated that the US retail e-commerce sales for the second quarter of 2015 reached $83.9 billion, an increase of 4.2 percent from the first quarter of 2015 and an increase of 14.1 percent year over year. E-commerce sales in the Q2 2015 also accounted for 7.2 percent of total sales in the US, according to the department. Meanwhile, total retail sales on the whole grew by just 1.6 percent from the first quarter of 2015 and 1.0 percent year over year.
Just look at the paths of Amazon and Wal-Mart. In July, Amazon surpassed Wal-Mart as the world’s largest retailer by market value after a surprise second quarter profit. Meanwhile, Wal-Mart recorded its biggest one-day decline in almost three decades after it announced, to stunned investors, that it expected its growth over the next three years to be a paltry 3 to 4 percent, and would likely see profits drop up to 12 percent next year.
After the news came out, investors saw over $20 billion in market value vanish in one day—and saw $83 billion disappear this year. The reason why it’s doing so terribly: It’s investing a ton of resources in things like wage hikes for employees to keep them happy, building out online grocery shopping, trying out subscription shipping. Basically, it needs to fend off Amazon, which is doing great in those areas.
Attractive Innovation
Investors just seem to view Amazon as a better bet these days, a company that, even after 21 years of existence, is still unafraid to try new things and see what turns out to be its next breakout hit. It’s already seen massive success with the cloud and (less conspicuously) its third-party online marketplace. It just launched Handmade, an Etsy competitor for artisanal goods, and Flex, an Uber-like platform where on-demand workers could pick up shifts delivering packages. It’s still visibly innovating in a lot of ways, which is attractive to potential shareholders.
So, this upcoming holiday season, expect the differences between these massive players in retail to be thrown into even sharper relief. Amazon’s likely to keep crushing it—and it’ll have the workforce and the infrastructure that enables it to do so. Now, if it would only make a better effort than its recent misguided attempts to fix its culture image problem.
Drew Kelly for WIRED
The instant gratification economy is still very much in vogue, and that means the demand for on-demand workers is high. Now, an entrenched tech giant and an early pioneer of the entire concept of “on-demand,” Amazon, is wading further into the gig economy.
The online retailer has for weeks been quietly operating a new program called Amazon Flex, according to a report from The Wall Street Journal, and has been testing it in its hometown of Seattle. Flex works in much the same way as other popular on-demand companies, including Uber and Postmates, do under the so-called 1099 model: Using an app platform, a network of independent contractors can sign up for flexible delivery shifts. On Amazon Flex, the company has these independent contractors collect packages from warehouses and bring them to customers’ homes in an hour or so.
According to the Journal, the program works hand in hand with Amazon’s Prime Now service, where customers who sign up for the company’s $99-a-year unlimited shipping program can get items delivered to their doorstep for a fee in an as little as an hour. Prime Now is available in 13 cities, and the company will eventually expand Amazon Flex to cover those areas in addition to Seattle, the WSJ reports.
This move is not surprising. Flex fits neatly into Amazon’s ultimate goal to own all retail. Over the years, Amazon has built up a massive logistics infrastructure to make convenient deliveries scalable. It’s poured money into building huge fulfillment centers near major metro areas, which has eaten hugely into the company’s bottom line. Now, owning a platform for on-demand workers on top of all that could help the company hammer out streamlined delivery routes using tracking software. The move also aligns with the company’s smart growth-before-profits strategy, which it’s ridden to great success (though, according to recent reports, oftentimes at the expense of a healthy work-life balance for employees).
That’s a very different tack from most on-demand companies, which typically keep overhead costs low and rely on a vast pool of independent contractors to offer various services to consumers, ranging from deliveries to instant rides, home-cleaning, and laundry. With Flex, Amazon has adopted the on-demand worker strategy, and it has the added advantage of a sprawling logistics infrastructure to boot. It’s worth noting that Amazon has operated its Mechanical Turk platform for a while—where workers completed micro-tasks like transcription, data entry, image identification—but now apparently, Amazon thinks on-demand work can transfer well to maximizing the company’s operations in package logistics, too.
But Flex does make Amazon yet another player in the contentious debate over whether independent contractors in the “gig” economy should be considered as employees. Recently, a slew of lawsuits have been filed against on-demand companies that employ 1099 contract workers, a model that gives contractors the option of flexible work at the expense of labor protections.
This month, a federal judge in San Francisco granted class-action status to a suit brought by Uber drivers against the on-demand ride company. In a couple of instances, California state agencies have ruled that two ex-Uber drivers were employees of the company, not independent contractors, and were entitled to benefits. And in June, FedEx agreed to a settlement compensating around 2,000 delivery drivers who were deemed employees of the company, not contractors–a setup it’s hard not to compare to Amazon Flex.
This is the complex legal mire Amazon is wading into with Flex. But even still, where efficiency is the name of the game, having its own on-demand workers might make good enough sense to justify the potential messiness.
Amazon has not yet returned WIRED’s request for comment.
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Amazon’s Second Prime Day Was Pretty ¯_(ツ)_/¯