Getting America’s favorite value investor’s stamp of approval is always a huge win for any stock. That’s just what happened over the weekend when Warren Buffet announced that Berkshire had taken a stake in Amazon (NASDAQ:AMZN). As awesome as this news is in underscoring Amazon stock as still valuable, it really wasn’t the only or biggest piece of news for the firm last week.
Just as with CEO Jeff Bezos’ divorce news, the Buffett news is overshadowing a potential game-changer for Amazon and its rivals. Amazon is unveiling one-day delivery for its Prime members.
This is a huge development for Amazon and culminates the work of roughly four years’ worth build-out. And every other retailer should be scared at the announcement. For AMZN stockholders, it’s the real reason to be excited this past weekend.
Amazon Stock and the New Normal
The problem with online shopping is shipping time. Waiting to get your purchased items has long been the thorn in many retailer’s sides. Consumers want their goods and they want them now. Amazon changed the ecommerce game a few years ago when it rolled-out two-day shipping for its Prime members. By doing this, AMZN upped the expectations for online shopping in a big way. This forced many other physical retailers to play catch-up.
And those retailers with wide networks certainly did. Giants like Target (NYSE:TGT) and Walmart (NYSE:WMT) have been able to use their distribution channels to also offer two-day shipping as well as offering new omnichannel solutions. Blending online, physical stores and the ability to pick-up items in store after a mobile/web purchase has become the norm. For those retailers without this ability, it’s meant lost sales and plenty of bankruptcies.
The problem for these omnichannel solutions is that you still need to physically leave your house and get your items. That’s one of the real benefits of online shopping. There is no fighting the Black Friday crowds and the 100% knowledge that your items are in stock. Which is why Amazon’s latest news is a mega-sized game changer for the retail sector.
After spending billions to beef up its network of distribution assets, Amazon announced that one-day shipping is here for its Prime Members. According to RBC Capital Markets, Amazon already can already offer same-day and next-day delivery to roughly 72% of the households in the U.S. It can do so for 95% of the 16 wealthiest and most populated states/cities. In order to make a reality for the rest of the country, Amazon will need to spend about $800 million this year on adding some additional capacity in its logistics network. But that expense will be more than worth it.
Amazon and the One Day Win
The problem even with two-day shipping is that critical items or other must-haves still take time to get to your home. One-day and same-day Prime Now shipping options basically eliminates the need to go to a physical store in order to purchase goods.
You really can buy your toothpaste and it’ll be at your door pretty much instantly. According to Amazon, the new one-day shipping will be available on about 100 million items. This includes plenty Amazon private label brands.
Moreover, one-day shipping could a major future revenue driver for Amazon stock. The firm has about 103 million Prime members and these members spend big. Prime members buy an average of $1,400 per year worth of goods and services on Amazon. On the other hand, regular customers only spend about $600. Same-day shipping will be a big driver to get more people to sign-up for Prime memberships. And once you’re in the Amazon system, you get hooked pretty fast.
At the same time, next-day shipping could be the push that gets Prime members to spend even more as time-sensitive purchases are now within grasp for the retailer. There’s almost no need to go to other brick-and-mortar retailers. You can quickly tell Alexa to just buy it on your way home from work. All of this means more profits coming Amazon’s way over the future.
The Bottom Line on Amazon Stock
Just like its two-day shipping news a few years ago, one/same-day shipping is going to shake-up the retail sector. While larger firms like Walmart, Target and Home Depot (NYSE:HD) will be able to compete and use their vast systems to offer similar services, many smaller retailers are going to be toast.
For many consumers, there really isn’t much of a reason to shop anywhere else. Once you’re in Amazon’s system and a Prime member, you can now just shop there for pretty much everything.
Over the longer haul, this will only help strengthen Amazon’s grip on the sector, boost its revenues and ultimately, its profits. And yes, it will have to spend some cash to get to 100%, the price is really a small one considering the longer-term win.
For investors, including now the Oracle of Omaha, Amazon continues to change the game in the sector. Amazon stock continues to be a major buy as it dominates and because the only retailer you’ll ever need.
Disclosure: At the time of writing, author Aaron Levitt was long AMZN.
