Amazon Seizes Opportunity in Logistics Void Left by Shopify’s Retreat
Amazon is capitalizing on Shopify’s sudden withdrawal from shipping services earlier this year, creating a lucrative opening for the online retail giant to deliver products ordered from websites other than Amazon.
The company is promoting Buy With Prime, a service introduced last year that offers fast delivery of customer orders placed on external websites. At the Accelerate sellers conference on Thursday, Amazon revealed metrics showcasing the sales boost experienced by merchants when shoppers utilize their Amazon Prime membership for expedited shipping and other benefits.
According to Peter Larsen, an Amazon vice president, three out of four Buy With Prime purchases come from new customers for the respective online brands. Larsen explained that this service attracts shoppers who are already familiar with the Amazon experience and trust in its quick delivery capabilities. In fact, Amazon disclosed in January that merchants using Buy With Prime witnessed a 25% increase in sales conversions.
With almost 38% of all online spending in the US, Amazon dominates the e-commerce market, as reported by Insider Intelligence. The company is increasingly generating revenue by providing services like product packing and delivery to online merchants, rather than solely focusing on direct product sales. As Amazon’s own online sales growth slows down, it anticipates more shoppers will opt to purchase products directly from brand websites rather than from online marketplaces such as Amazon and Walmart.
Insider Intelligence predicts a 17% increase in direct-to-consumer sales this year, amounting to $182.6 billion, nearly double the 9.3% growth rate of overall online spending.
While Amazon did not disclose the number of merchants using Buy With Prime, Larsen emphasized that the company is heavily invested in this service. However, he acknowledged that there is still work to be done.
The retreat of Shopify from logistics seems to have brought about a truce between the two companies. Tensions escalated last year when Shopify acquired logistics startup Deliverr for $2.1 billion, signaling its intention to directly compete with Amazon. However, Shopify abandoned these plans in May when it sold its logistics unit to San Francisco startup Flexport, which recently underwent a change in leadership and is currently undergoing its own strategy shift.
The truce was solidified in August when Shopify and Amazon struck a deal allowing merchants using Shopify’s e-commerce tool to also utilize Amazon’s logistics network. Larsen stated that the integration went smoothly since both companies prioritize the best interests of merchants and shoppers.
“I don’t think we need to have this Amazon-versus-Shopify narrative anymore,” Larsen remarked.
Merchants have expressed satisfaction with Buy With Prime thus far. Aaron Cordovez, co-founder of Zulay Kitchen, which sells approximately 1,000 products on Amazon, stated that the service is helping him increase sales on his website because customers trust the Amazon process. He believes that there are few downsides to using the service, which will likely encourage more people to give it a try.
In the past, Amazon has faced challenges in expanding its e-commerce success beyond its own online store. It relaunched Amazon Pay in 2013 to enable customers to shop on other sites using their stored payment information. Additionally, in 2015, the company shut down its Amazon Web Store business, an earlier attempt to provide services that allowed online merchants to create their own stores similar to Shopify.
Ben Rey, chief revenue officer at Boston-based software firm Teikametrics, which manages nearly $1 billion in annual advertising spending on platforms like Amazon and Walmart, believes that the Buy With Prime initiative could be more successful as online merchants recognize the importance of selling through multiple channels, including marketplaces, their own websites, and brick-and-mortar stores.
“There’s a lot of interest in diversifying to other channels, and the challenge has always been fulfillment,” Rey explained. “Amazon is striking when the iron is hot.”
This story was originally published on bloomberg.com. Read it here.