The Amazon Effect   /   October 28, 2021

Amazon Briefing: Why Amazon is pushing in-store pickup

This is the latest installment of the Amazon Briefing, a weekly Modern Retail column about the ever-changing Amazon ecosystem. To receive it in your inbox every week, sign up here.

In the U.S., no company is more responsible than Amazon for the e-commerce landscape as we know it today. Thanks to Amazon, people buy products online, and they expect it at their door in two days.

But even Amazon is seeing the e-commerce landscape shift under its feet. For as dominant as fast delivery is, a growing number of customers are opting to pick up their orders at physical stores. According to a Financial Times report, nearly 20% of online orders this year were picked up at a store, up from 16.8% last year. This season, retailers have raced to offer ever-faster pickup times — Office Depot now promises pickup within 20 minutes — in order to draw in customers during the holidays.

Amazon is the latest among them. Last week, Amazon announced a new program called Local Selling that allows retailers and third-party sellers with a brick-and-mortar presence to offer in-store pickup as a fulfillment option on Amazon. Orders can be placed on Amazon, but picked up at their own stores. That shift is an acknowledgement not only that customers prefer to pick up products in-store but it could also — importantly — reduce the cost and strain on Amazon’s fulfillment network, especially during busy periods like the holidays.

For Amazon, the rise of in-store pickup among consumers poses unique challenges. “Because Amazon doesn’t have that brick-and-mortar footprint like a Walmart or a Target, they can’t really capitalize on shoppers’ desire to pick up if they want to,” Rachel Dalton, who tracks e-commerce and omnichannel retail insights at Kantar, told me.

Instead, Amazon is outsourcing pickup opportunities to retailers. Retailers who are participating in the Local Selling program include independent businesses like the electronics retailer MODIA, as well as big retail chains like Best Buy. Customers who buy products from these retailers on Amazon can select, at checkout, the option to ship the order to each store (if those products are sold at the store).

Local Selling isn’t only an in-store pickup program — it comes with other features, like local delivery, where retailers can deliver their products directly to customers in their area at a pre-set time. But for Amazon and for third-party sellers, in-store pickup is especially tantalizing because it is so cost-effective. Target said last year that it saves 90% on costs when customers pick up products in its stores versus having them shipped to their homes.

“If you look at what the consumer trends are, the BOPIS model is becoming much, much more prevalent,” said Harvey Ma, svp of consumer and retail performance at NielsenIQ. For Amazon, with Local Selling, “what they’re doing is capitalizing on what is hot right now.”

Amazon in particular spends a lot of money refunding orders. Especially as it struggles to manage global supply chain issues and the post-Covid spike in demand, in-store pickup promises to be a way to ease some of the worst fulfillment bottlenecks. If even a small portion of customers elect to pick up products at a physical business, that saves Amazon the cost of having to ship and warehouse those products themselves. “I don’t think that’s the main motivation for this particular program, but I certainly think it’s part of it,” Dalton said, referring to supply chain issues.

While the Local Selling program is an important escalation of Amazon’s in-store pickup offerings, it isn’t the first time that Amazon has tried to convince its customers to opt for pickup. Some stores, like Kohl’s, have for years accepted product returns on Amazon’s behalf. While retailers believe that working with Amazon could bring in extra foot traffic to their stores, these relationships can only continue so long as those retailers see Amazon as an amenable partner.

Amazon also pushed a program last year called Counter, in which customers could order items to either partner retailers or its own retail stores — mainly the Amazon 4-Star stores or Amazon Books stores — and pick them up there for cheaper.

Amazon has also been pushing Amazon Lockers in shopping malls and on college campuses. The results, so far, are somewhat mixed. Certainly, only a small minority of shoppers ship products to lockers. A Kantar survey found that 15% of shoppers pickup from lockers, a category that includes not just Amazon Lockers but also lockers at Home Depot, Lowe’s and other retailers. Given Amazon’s share of e-commerce sales writ large, “probably a fairly big percentage of that 15% are doing pickup at [Amazon] lockers,” Dalton said.

If many retailers sign on for Local Selling, that would dramatically increase the number of locations across the U.S. where customers could grab products they order on Amazon. But it isn’t clear yet that small retailers will be rushing to join the program.

Every customer who buys a product from a third-party seller is technically Amazon’s customer — Amazon, rather than the third-party seller, keeps each customer’s email address. Amazon has made the fact that it can handle everything from fulfillment to customer service on a seller’s behalf a central part of its justification. In exchange, sellers have grudgingly parted with customer information.

But stores in the Local Selling program might end up doing most of the work on each order themselves — including selling their own products and facilitating pickup for local customers. Even after that, they still won’t retain any information on who their customers are.   

Seller services are consolidating, too

Plenty of attention is going toward companies like Thrasio looking to acquire and consolidate Amazon-native brands, but another, similar phenomenon is happening in the seller services space.

This week, the e-commerce software and data firm Assembly bought the advertising and sales platform Pacvue in a nine-figure deal. That comes shortly after Assembly bought Helium10, another prominent software tool in the Amazon space.

Assembly now has a valuation above a billion dollars, and it recently told Business Insider it is looking to acquire more e-commerce services firms. That, paired with the recent $2 billion valuation for Pattern, shows just how valuable the business of e-commerce services has become.

Amazon news to know:

  • Internal problems with Amazon’s HR system has led many workers to be accidentally fired or consistently underpaid, a sign of the growing pains associated with Amazon’s hiring spree.
  • In France, advocates in the book publishing business are pushing a bill that would impose a minimum shipping fee on book purchases, in the hopes of stemming some of Amazon’s dominance over that industry.
  • Despite the recent exit of its co-CEO, Thrasio announced it has raised another $1 billion in funding, bringing its total to an eye-popping $3.4 billion.

What we covered:

  • Amazon announced a series of new ad formats and analytics types at its advertising forum, Unboxed. Included in the list is Brand Metrics, a new tool that estimates for brands how many Amazon customers are considering buying their products.
  • In the wake of the pandemic, restaurants are launching CPG products to diversify their revenue sources.
  • After a two-year hiatus, Mailchimp and Shopify are going to start working together once again.
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