Here's Amazon's Logic for Sunday Deliveries
Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Stocks opened the week on a winning note -- barely -- with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average gaining 0.07% and 0.14%, respectively. That was enough to push the Dow to a new record high, but volatility was very low -- the range in the S&P 500 was less than 6 points, or roughly 0.3%.
Amazon.com announced today that it is teaming with a carrier to offer Sunday deliveries, beginning in New York and Los Angeles from this week, and rolling the service out "to a large portion of the U.S. population" next year. If you're thinking Amazon's natural partner on such a project would be either FedEx or UPS, you might be right, but the technology-and-e-tailing champion is teaming up with the good ol' U.S. Postal Service instead.
That might sound like a bit of an odd pairing, but, taking a step back, the announcement contains a much bigger surprise -- the fact that it hasn't come sooner; or, as Wired noted:
For Amazon, Sunday delivery must feel long past due. Delivering products is Amazon's core business. Imagine Google not being able to offer search on Sunday, or Apple closing the App Store one day a week, or Walmart closing all its stores.
Given the breadth of Amazon's selection and its intensely competitive approach to pricing, immediacy remains one of the last advantages of bricks-and-mortar retailers such as Wal-Mart Stores and Target, so filling out the week in terms of possible delivery days is an important win. Wal-Mart Stores offers a same-day delivery service for groceries and household goods, while Amazon customers in Seattle and Los Angeles can already choose from 100,000 non-grocery items for same-day delivery with groceries.
Sunday deliveries will be available to all customers within the target cities, but they are particularly valuable to Amazon's Prime customers, who pay a $79 annual subscription for unlimited two-day delivery. Although Amazon doesn't disclose the number of Prime members (analysts' estimate: 10 million-plus), it did say this month that it ships twice as many goods to those members as to customers who select free shipping. Adding Sunday enhances Prime's value for members and makes it generally more compelling for non-members.
Amazon customers won't pay anything extra to receive goods on Sunday, but someone has to pay. As Forrester Research analyst Sucharita Mulpuru told The Wall Street Journal that "this has to be much more expensive than other days" because of lower volumes. No matter, for this is consistent with Amazon's strategy, which is to delight its customers with a combination of superior choice, price, and service in order to dominate the markets it competes in -- all the while accepting low margins. In that regard, Sunday deliveries look like another milestone on Amazon's long march to conquer retail and fulfillment.
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The article Here's Amazon's Logic for Sunday Deliveries originally appeared on Fool.com.Fool contributor Alex Dumortier, CFA, has no position in any stocks mentioned; you can follow him Twitter: @longrunreturns. The Motley Fool recommends and owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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