Friday, December 27, 2013

It is my Opinion that it’s Amazon’s Fault that you got your present late, no matter where you bought it from.

I am tired of one pundit after another blaming UPS for not getting packages to everyone in time for Christmas. It’s my opinion that they are not really analyzing the story. So despite the fact that punditry is all they do and I have a store to run, and a piddling little independent one at that, I thought I’d take time out of my busy day (inventory is just a week away! An email newsletter has to get out! A co-sponsor for Sue Monk Kidd still needs to be signed! Et cetera!) to lay out my humble opinion on how this mess happened.

1. Amazon artificially prices express shipping low, taking a loss on the service*, like they do on many of their items for sale. Let’s look at the cost of us sending one book to my friend Michael in Jamaica Plain (Boston), who bought a few things from us this season. Our cost of sending the book via second-day air was about $21, and that’s not including the mailing bag (50 cents) or the label (about 10 cents) or the labor. A $20 charge is incentive to buy earlier. Even a $10 charge would make you think twice about last-minute shopping.

2. While Amazon still has an overwhelming share of internet purchasing, the problem is not limited to them, as competitors are forced to match prices.

3. Now we know that larger vendors can negotiate this price down, but there are still costs. But if you’re an Amazon prime customer, there’s no additional cost past your annual fee, right? Procrastination is cheaper and easier than ever!

4. A huge spike in demand is caused by artificially low prices. Here is UPS and FedEx’s bind. I already mentioned in the blog that the UPS fleet was filled to capacity, and that they’d  rented trucks from various fleets. But where do you get additional last-minute drivers who know the routes like the regulars? I have no clue.

5. Here’s the real rub. It’s a seasonal issue, but this mess may not even happen a year from now, at least at this level. Amazon’s building a million square foot of warehouse 45 minutes from Milwaukee, and have similar building plans all around the country. You’ve got to figure that they are planning to have their own delivery system in place. No, not drones, silly—that was a PR move that coincidentally came the day after Small Business Saturday. By next holiday, we expect they'll have their own fleet of trucks and promise next-or-even-same-day delivery for major metropolitan areas.

Get it? So UPS buys more trucks and trains more drivers and a good amount of that business never materializes. Will some of it materialize? Of course it will--Amazon has plenty of other customers and they all don't have the resources to build warehouses. **

This fiasco was the equivalent to having your computer crash from too much traffic, or closer to home, too many people showing up at an author event. Somebody's going to be unhappy. How do you solve this problem? Of course the answer is proper pricing. But here’s the problem—UPS can’t force Amazon to charge the correct amount for shipping.

It’s all part of the Amazon craziness. Everything is short-term loss for long-term gain. Stockholders have been fed this line for 20 years, but they still treat them like a start-up tech company. We sell widgets, but we’ll sell deliver them via drones! While independent stores are certainly hurt by these actions, I really think that at this point, there is more damage done to competing price-sensitive retail chains.***

This is not an anti-Amazon post. I am just synthesizing the news stories I've heard, adding our first-hand knowledge and a bit of speculation, just like any news pundit.

And on a final note, UPS neither picked up nor delivered anything to us December 26. We think they were still catching up on December 24, though when questioned, they said we had nothing scheduled to be delivered. Highly unlikely, as we got 40 packages today.


*I should also acknowledge that we also ship at a slight loss. That same UPS shipment to Jamaica Plain via ground costs $12 ($11.50 and 50¢ for the mailer) but we charge $10. As it is, people freak out at the $10, because, as we’ve noted, retailers nowadays eat the cost of shipping to compete with Amazon.

**It’s possible that other big retailers will follow suit, harkening back to the days when every large department store had their own delivery fleet. Right now our Quill office supply shipments come by parent-company Staples’ fleet of vans from a warehouse in Beloit.

***That said, Amazon worries about every competitor, large or small. Two years ago an Amazon ad was placed on a bus shelter a block away from Boswell. It was the only such ad I spotted in the metro area.

1 comment:

Anonymous said...

Daniel, great post. Sadly UPS ( an incredibly smart and well managed company) has to "eat"
all the blame because they are so dependent on this last minute business. JF