Amazon Flex Is Another Complicated Solution to a Simple Problem

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What do you get when you combine GrubHub (GRUB), Uber, and United Parcel Service (UPS)? You get the newest marketing strategy from Amazon.com (AMZN), called Amazon Flex, which essentially turns ordinary folks with a vehicle into Amazon’s delivery people.

Amazon Flex is Yet Another Complicated Solution to a Simple Problem Q:AMZN)Yes, you read that right — the world’s biggest online retailer is sidestepping UPS and leapfrogging its own drone-delivery ambitions by launching a crowd-sourced package-delivery service called Amazon Flex.

Creative? Sure, it’s novel. But, as Jeff Goldblum’s character Dr. Ian Malcolm wisely pointed out in 1993’s Jurassic Park film, “You were so preoccupied with whether or not you could, you didn’t stop to think if you should.”

In other words, Amazon Flex initiative looks like a lot of trouble for not nearly enough upside. If Amazon wanted a cost-effective delivery solution, there are much better options.

Introducing Amazon Flex

Just as a matter of record, putting paid-for customer packages in the hands of ordinary people (they’re somewhat vetted — more on that in a moment) isn’t the dumbest thing Amazon has put on the table.

That honor still belongs the flying drone-delivery service Jeff Bezos first mentioned at the end of 2013, on TV’s 60 Minutes. His five-year plan was to create a fleet of flying, robotic package carriers. Fortunately, the FAA and common sense prevailed, though the idea still seems to be in development.

But Amazon Flex is a close second.

The comparisons to Uber weren’t for hyperbole. Much like the unsanctioned taxi service that has gotten into a bit of hot water for crossing the line between “employee” and “contractor,” Amazon is looking for couriers in the Seattle area that (1) have an Android phone, (2) can pass a background check, and (3) can work at least a 2-hour block during normal delivery hours.

If brought into the Amazon Flex program, they’ll make between $18 and $25 per hour.

Though the pilot and beta test is happening in Seattle, the company says Amazon Flex is coming to Manhattan, Chicago, Baltimore, Miami, Dallas, Austin, Indianapolis, Atlanta, and Portland in the future.

The question is … why?

While Amazon.com hasn’t explicitly said it, the move does seem to be a reasonable way of cutting costs. Amazon’s shipping costs soared 31% last year, and that was despite a half-year’s worth of extremely cheap fuel prices.

The bigger reason Amazon is putting this unusual effort into motion, though, may well be that delivery providers like UPS or the United States’ postal service simply can’t do the one-hour deliveries or even the same-day deliveries the company has been touting via Amazon Prime and Amazon Prime Now.

Why It Won’t Work/What Amazon Should Do

The new service has its fans and supporters, of course, because for some people, Amazon can do no wrong. By and large, though, this is a bad idea all around, and not just because it might not actually save any money in the long run.

Above all else, with the USPS and United Parcel Service there’s at least some measure of accountability.

Though Amazon.com hasn’t explicitly said, one can presume the contracted couriers also manage some sort of package-tracking process; the company may even employ some sort of GPS to monitor the drivers’ whereabouts if only to ensure they remain on the prescribed rout. But, with no uniform and no identifiable/familiar delivery vehicle, Amazon Flex couriers may find they have a tough time being trusted.

Perhaps the bigger problem Amazon Flex faces, however, is thievery.

Presumably, the background checks Amazon performs will disqualify those with a criminal record. But, criminal records only exist for thieves who get caught. One can surmise the first package that goes missing will result in an expulsion from the Amazon Flex program, but it wouldn’t be difficult for a driver to claim or even stage a mugging.

An extreme case? Sure, but not out of the realm of possibility. It would only take two or three “incidents” for Amazon’s customers as well as its drivers to sour on the whole idea.

The solution Amazon might want to try rather than Amazon Flex is (drum roll ) … building its own fleet of delivery trucks. With that, it would only pay for the cost of deliveries rather than chip in towards UPS’s profits. And, better still, it could control the entire delivery process.

But maybe that idea isn’t wild and crazy enough to sate Jeff Bezos.

Bottom Line for AMZN Stock

As for the positive impact the launch of Amazon Flex may have on AMZN stock, aside from the near-term attention the announcement brings, don’t look for one.

That’s not to say Amazon won’t pursue the expansion. Indeed, Amazon most likely will go forward with its expansion of Amazon Flex to other major cities. Given the company’s penchant for spending $2 to make $1, however, don’t look for this initiative to be the one that finally pulls the company out of its low-margin funk.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/amazon-flex-amzn-stock/.

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