Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

How Amazon Can Afford to Ship a $2 Stick of Deodorant to Your House by Tomorrow

How Amazon Can Afford to Ship a $2 Stick of Deodorant to Your House by Tomorrow

Amazon's dropping the "add-on item" tag from a lot of its inventory.

Amazon made waves when it announced Prime's move from two-day to one-day shipping. Over the last few months, it's taken steps to expand one-day shipping to more and more items, and its most recent effort involves removing barriers for one-off orders of low-priced products -- items like a $2 stick of deodorant.

Previously, Prime members had to include most sub-$5 products with another item in order to qualify for their free shipping benefit. Now, many of those items are Prime eligible on their own, and Amazon could deliver them to your house the next day. The ability to ship millions of items in one day with no order minimum is a huge competitive advantage for Amazon, even over its brick-and-mortar competitors.


Owning the logistics network and scale

The biggest contributing factor to Amazon's ability to ship inexpensive items quickly is that it's already operating a large portion of its shipping itself. It's investing in more and more cargo planes (now with 50 leases) and it's opening several air hubs. Its new hub in Forth Worth, Texas, opened at the beginning of the month. It'll open another one in Cincinnati in 2021 capable of supporting 100 cargo planes and 200 takeoffs and landings per day.

Amazon is also taking more control of its last-mile delivery, relying less on its partners. Amazon's contractors will account for 23% of deliveries this year, according to an estimate from Cowen analyst John Blackledge. He expects that number to climb to 43% by 2024.

Amazon's growing share of its own deliveries is a result of its scale and its ability to cherry-pick the most cost-efficient deliveries. As Amazon increases order volume and the number of shipments headed to the same area, the company is increasingly incentivized to ship more of its own orders. It's already sending a plane and truck to the area anyway, so the marginal costs continually decrease. That's why CFO Brian Olsavsky said it's often both faster and less expensive for Amazon to ship orders itself than to rely on its shipping partners.

And that's why the e-commerce titan can afford to tack on a small box holding a $2 stick of deodorant to a delivery manifest at no additional cost to the consumer; the marginal cost for Amazon is often far less than if it was using a shipping partner.

That's not to say there are no costs. Amazon's probably still losing money on these small-item orders. But it's able to lose less money than anyone else, and the benefits could be huge.


Making everyone a Prime member

Fast shipping on low-priced convenience items or consumer staples had a noticeable impact on Amazon's sales in the second quarter. North American sales accelerated to 20% growth year over year, and Olsavsky attributed the acceleration to Amazon's one-day shipping efforts. Consumers seem more likely to buy items like deodorant or batteries if they can get them the next day instead of making a run to a local store just for one item.

That trend should continue as Amazon makes more stand-alone items available for one-day shipping.

Importantly, fast shipping on these items gives consumers yet another reason to subscribe to Prime. Prime membership in the U.S. is starting to reach a saturation point, but this could be a catalyst that unlocks even more growth in the program.

Continuing to grow Prime could be a massive boon for Amazon. First of all, Prime members spend more on average than nonmembers. The pattern has held true even as Prime scales, indicating Prime encourages more spending on Amazon and not just that those spending on Amazon are more likely to sign up for Prime. The program drives loyalty, encouraging consumers to at the very least start their online shopping search on Amazon.com.

Not only do Prime members spend more on Amazon, the increased number of searches thanks to growing Prime membership should also lead to greater ad revenue for the company. Ad revenue reached about $11 billion over the trailing 12 months.

Moreover, more Prime members shipping items via Prime means greater volume and density of shipments. As such, it may become even less expensive for Amazon to ship items itself, creating a virtuous cycle as more and more items become eligible for one-day shipping. Increased shipment volume could eventually open the door for Amazon to offer shipping services to other businesses to truly take advantage of its scale and turn its shipping expenses into a profit center.

Amazon is willing to take a loss on some small shipments now in order to grow Prime and other parts of its business that could become huge sources of profits in the long run. And that's bad news for brick-and-mortar competitors.


Should Amazon be on your buy list? It's on ours...

Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor, has quadrupled the S&P!*

Tom and David just revealed their ten top stock picks for investors to buy right now. Amazon made the list -- but there are 9 other stocks you may be overlooking.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
JD.com Launches €2.2 Billion Bid for German Electronics Retailer Ceconomy
Azerbaijan Proceeds with Plan to Legalise Casinos on Artificial Islands
IMF Upgrades Global Growth Forecast as Weaker Dollar Supports Outlook
House Republicans Move to Defund OECD Over Global Tax Dispute
France Opens Criminal Investigation into X Over Algorithm Manipulation Allegations
Trump Steamrolls EU in Landmark Trade Win: US–EU Trade Deal Imposes 15% Tariff on European Imports
ChatGPT CEO Sam Altman says people share personal info with ChatGPT but don’t know chats can be used as court evidence in legal cases.
Intel Reports Revenue Beats but Sees 81% Rise in Losses
Politics is a good business: Barack Obama’s Reported Net Worth Growth, 1990–2025
UN's Top Court Declares Environmental Protection a Legal Obligation Under International Law
"Crazy Thing": OpenAI's Sam Altman Warns Of AI Voice Fraud Crisis In Banking
The Podcaster Who Accidentally Revealed He Earns Over $10 Million a Year
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
President Trump Diagnosed with Chronic Venous Insufficiency After Leg Swelling
CEO Resigns Amid Controversy Over Relationship with HR Executive
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
Tulsi Gabbard Unveils Evidence Alleging Political Manipulation of Intelligence During Trump Administration
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Trump Announces Coca-Cola to Shift to Cane Sugar in U.S. Production
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
Zelensky Reshuffles Cabinet to Win Support at Home and in Washington
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Church of England Removes 1991 Sexuality Guidelines from Clergy Selection
Superman Franchise Achieves Success with Latest Release
Hungary's Viktor Orban Rejects Agreements on Illegal Migration
Air India Pilot’s Mental Health Records Under Scrutiny
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
Moonshot AI Unveils Kimi K2: A New Open-Source AI Model
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
EU Delays Retaliatory Tariffs Amid New U.S. Threats on Imports
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Bitcoin Reaches New Milestone of $116,000
Severe Heatwave Claims 2,300 Lives Across Europe
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
×