Bookshops and Amazon’s Last Mile

There has been a lot of discussion in my timeline since Amazon opened its first bricks-and-mortar bookshop in Seattle this year. Thanks to confirmation bias we interpret the news through our own backgrounds and those of the people around us, and given mine in retail and publishing, it’s not surprising that many people I spoke to focused their attention on the immediate competition to established bookshops and other retailers (another obvious bias that’s worth acknowledging at this point is that what follows is written from a UK perspective).

But this immediate disruption to retail is only part of the picture, so a Financial Times story this week on Amazon opening more physical stores was particularly welcome in highlighting the supply chain benefits to Amazon independent of whatever sales the stores make. It brought together a number of things that I’ve been reading and thinking about recently.

Notwithstanding any recent reputational damage caused by its tax affairs, Amazon is one of the UK’s most respected brands. It’s well known that one of the elements of this success is a relentless focus on service: first among the company’s leadership principles is customer obsession:

Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.

The issue of trust is interesting in the context of brand. The best definition I’ve heard of a brand came from one of the marketing classes on my MBA, where the lecturer used a quote from one of the school’s distinguished alumni, Coca-Cola CEO Muhtar Kent:

A brand is a promise. A good brand is a promise kept.

The corollary of that statement is that Prime, next-day delivery and the nature of Amazon as “the Everything Store” are what the consumer is promised — and what makes the brand “good” is the fulfilment of those promises. To this end, Amazon has built its supply chain with a level of focus that McKinsey (itself hardly lacking in purpose) describes as “maniacal” — for example, huge investments in R&D around robotics and warehouse automation. These innovations are part of an overall logistics operation that is remarkable in its scale and scope. Amazon spends some 12% of its revenue in this area.

I looked into this a few weeks ago when I read some research in the CB Insights newsletter which showed that some 44% of the US population lives within 20 miles of an Amazon logistics facility. The equivalent proportion in the UK is certainly higher: for my own interest, I put together this map showing Amazon’s logistics footprint on the UK mainland versus the population.

Data sources: http://www.mwpvl.com/html/amazon_com.html, https://populationexplorer.com

The issue is that this incredible network gets orders only as far as the Last Mile from the consumer — not necessarily a literal distance, but the term for the terminal movement of goods from a distribution hub to the delivery address. And as anyone who’s worked in ecommerce would agree, that’s the stage of the process that is most outside your control, and often where service problems emerge.

Imagine obsessing over customer service, achieving the broadest range and the most competitive pricing, building customer loyalty over a period of years, developing a logistics operation that would shame the militaries of many advanced nations, and then—

—maybe the parcel is just one of the 40% that miss their first delivery window because the recipient isn’t there to accept delivery

—or worse yet, the delivery driver throws the parcel over the fence, or onto the roof, or maybe it isn’t just one egregious case but thousands of your previously loyal customers protesting your choice of courier

If third parties are stopping you from keeping your promise to customers, the implication for the value of your brand is obvious. As is the strategy to resolve the issue: taking greater control of the last mile*. For Amazon, this manifests itself in various ways — I can’t think of another retailer innovating this relentlessly or with such variety around its last mile:

Developing an in-house delivery network to reduce reliance on third party couriers.

Investing in smart locks that may allow couriers one-time entry to premises for the purpose of deliveries.

Testing the use of drones for (presumably or initially) high-value deliveries beyond line-of-sight.

Somewhat more prosaically, installing collection lockers in other retail stores, public transport and other high footfall locations.

And, back to where this started, opening bookshops and other physical stores where orders can be collected or items returned. This category is particularly interesting because Amazon may also realise a host of other benefits: gathering consumer insight; providing showroom and support facilities for their increasing range of devices, particularly the Echo family (which are closely linked with the idea of the connected home, and the smart locks referred to above); making sales to walk-in customers; and upselling to people who’ve come into the store for any of these reasons.

All of this may have a real effect on the competitive environment for local retailers of the sort that many of my colleagues identified, and present a commercial opportunity. But I’d argue that for Amazon this may be almost incidental to the supply chain and brand promise benefits, and that if you’re standing in an Amazon retail store in five years this is most likely why you’ll be there.

*Or you could resolve last mile damages/problems with some lateral thought, like these people.

(Thanks to Peter Collingridge and Andrew Savikas for reading a draft of this story.)