efulfillment_15-02-05

SCDigest's Weekly eCommerce and eFulfillment Bulletin

Why Does Amazon.com Want Radio Shack Stores?

Perhaps surprising news this week that Amazon.com is interested in acquiring some number of retail store locations from Radio Shack, which is said to be on the verge of declaring bankruptcy and may indeed have made that filing by the time you read this.

The plan is for Radio Shack to get new funding and continue to operate under bankruptcy status. However, many believe the chain would be very open to sell off some of its small format locations.

Amazon is said to be very interested in acquiring some of those sites, though how many and where is unknown. Cell phone provider Sprint is also said to have a strong interest in some stores, perhaps co-branded with Radio Shack.

Why does online giant Amazon want these physical store locations?

"Amazon has considered using the RadioShack stores as showcases for the Seattle-based company's hardware, as well as potential pickup and drop-off centers for online customers," said Bloomberg Business.

To head off competition from Walmart - one of the few retailers that could pose a legitimate threat to Amazon - and to expand its operations, the company has adopted a new hybrid business model, combining e-commerce with offline services. A significant increase in physical stores could be a key element of that strategy.

Wired magazine wrote that "the point of an Amazon store isn't really to provide a new place to shop. It would be a way for Amazon to market its own products and services, including the Kindle and Amazon Prime, and to run a distribution center for its same-day delivery services."

There are lots of hurdles to this happening, including of course the price and perhaps an aggressive effort by Sprint. We suspect there will be more information over the next week.

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As Expected, UPS will Increase Peak 2015 Rates

As it had hinted in a staterment two weeks ago, parcel giant UPS announced it will in fact raise shipping rates for the 2015 peak season.

That after disappointing earnings in Q4, which the company largely blamed on very high costs from investment in people, trucks, aircraft and software to avoid a repeat in 2014 of the 2013 delivery snafu, in which millions of packages did not make it under the tree by Christmas day as promised, in the face of a huge surge in volumes.

In its earnings call with analysts on Tuesday, UPS said it would try to capture some of those costs, revealing it would implement "peak residential surcharges that are differentiated from our nonpeak time of year on a customer segmented basis." UPS also revealed it had experienced a 12% increase in both Cyber Monday and Peak Day deliveries in the recent holiday shopping period. But other than a couple of days, overall package volumes were actually under the company's forecasts, leading to the impact on earnings, as the investments were spead across fewer shipped packages than expected.

While surcharges are nothing new for UPS or FedEx - UPS for example currently has a published surcharge for residential delivery of $3.10. What is new here is that this additional surcharge would be for a specific period of the year, not for a type or requirement of service any time during the year, as is the case with other surcharges.

Just how large the surcharges will be wasn't yet specified, but it will certainly add to the bottom line pressures most etailers face.

Analyzing Amazon's Q4 Results

Last week, we offered some quick highlights of the then just released Q4 earnings numbers from Amazon, promising more detail this week.

Well, the Amazon numbers are very hard to parse from a supply chain perspective, for several reasons. That includes the fact "merchandise sales" includes goods Amazon sells and fulfills itself, some it sells and which are fulfilled by the vendor, some that are sold by vendors and fulfilled by Amazon, and its "marketplace" business, where the products are sold on the Amazon site by vendors and then fulfilled by them.

Why does this matter? Because while Amazon breaks out a number of supply chain costs, such as shipping costs and fulfillment costs, those really can only be understood in terms of some ratio, such as percent of sales.

Case in point: Amazon reported its shipping costs as a percent of global sales over the last five quarters. The company continues to lose money on shipping, with the net costs in Q4, for example, of $1.3 billion - meaning that is the delta between what it took in from customers for shipping (including Amazon Prime) versus what it spent on shipping.

The Amazon figures report shipping costs as a percent of worldwide sales - and over the last five quarters, that was in the 4-5% range.

But that includes sales of media and web services and things that do not require shipping. So while it's not perfect due to the complexities described above, comparing those costs against global merchandise sales would at least provide a better perspective.

Using that denominator, shipping costs are more in the 6-7% of sales range - quite a meaningful difference.

Source: SCDigest

Heck, we remember when companies used to actually make money on shipping.

That's as far as we made it this week. More next week.

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