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Cost and capability – how delivery became a thorn in Amazon’s side and the jewel in Argos’s crown


Yesterday, 2 February, I was at MetaPack’s Delivery Conference – a packed event, and I’ll be writing up some of what I saw and heard over the next few days. On a personal note though, it was great to meet lots of eDelivery readers there, many of whom said they recognised me “because of the beard”, which I am now considering trademarking.
One of the great paradoxes in the way the UK retail delivery sector currently works, or so it has seemed to me since we launched eDelivery, is that there is constant pressure to invest heavily in your network so that you can provide great quality of service that no one wants to pay for. And although more effort is being put on emphasising the value of a range of delivery alternatives and supplementary services, such as Doddle and Shutl to name just two who are carving out great businesses in this area, there’s no getting away from how expensive it is to create a truly great delivery experience at scale.

Take Amazon as one example of this. Last week it announced that in its final quarter of 2015, earnings were $35.7bn. And despite breaking its own records, it also recorded a 32.8% year-on-year increase in fulfillment costs. “Delivering for free in two hours is hard and expensive,” said Amazon’s CFO Brian Olsavsky, who is clearly a master of the understatement. With its deep Amazonian pockets, the increase in cost isn’t likely to deter the online retailer from continuing to beef up its delivery mechanisms. Why..? Because Olsavsky also pointed out that “customers love” Prime Now.

We should also consider Argos in this equation. The transition to its store-centric hub-and-spoke delivery network, which then spawned FastTrack, its £3.95 same-day delivery and free collections service, has been a costly undertaking; from the software and systems, through to the 3,000 drivers and much more besides. In fact, in the first half of its current financial year, Argos saw operating and distribution costs increase by 14m, as we reported in October. But as we’ve also pointed out several times in recent weeks, that expensive, class-leading service it can offer through FastTrack, and the way its stores are networked together, has proved to be an important consideration in the planned acquisition of Argos by Sainsbury’s.

Is it the law of unintended consequences that makes you a hot target for takeovers when you’ve invested heavily in developing a delivery capability that is outpacing your competitors? Or was it visionary strategic planning that realised by plugging a particular gap in the market you become an attractive proposition to shoppers and speculative buyers alike?

Frankly, your guess is as good as mine on that one. But I think it serves as a great lesson in appreciating the value in what you do, and the costs associated with not doing it; would Sainsbury’s be closing in on buying Argos if the latter hadn’t transformed its delivery network?

Elsewhere on eDelivery, we have a case study on the use of RFID by Norwegian eyewear e-tailer Express Optical, which has said adjø to delivery errors and cut shipping times by one whole day. Staying in Scandinavia briefly, we also have a piece on the opening of the new FedEx hub at Copenhagen airport.

We have a preview of a whitepaper from Electio which looks at whether retailers and carriers are taming the Black Friday beast, and in particular whether enough importance is actually being placed on customer attitudes and expectations, and a feature taken from the current print-edition of eDelivery Magazine on Whistl’s ambitions in the parcels space.

And finally, eDelivery Expo (EDX16) takes place on 27 and 28 April this year in Birmingham, at the NEC. We would love to see you there – I may even still be wearing a beard, so you’ll be able to spot me easily. We’re about to start ramping up our coverage of what you can expect to see and hear while you’re there; last year was great and we’re not intending this year to be anything other than even better. In the meantime, here’s a quick overview of the main EDX16 points.

If you have an opinion to share and would like to write a guest article for eDelivery, you can email me direct via this link; not everything is going to get an instant thumbs-up, I’m afraid but we’ve had several very interesting articles develop from the ashes of ideas that weren’t initially quite right.

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