Delivery Wars Decoded: What Amazon Sellers Need to Know to Stay Competitive

Why Is Fulfillment Now A Bigger Focus for E-Marketplaces?

The drive for today’s fulfillment wars began long ago — during the pandemic, which reshaped consumer shopping habits and drove a strong shift toward online shopping over brick-and-mortar. This shift in mindset has raised expectations for faster and more dependable shipping among consumers, placing increased pressure on retailers to enhance delivery speeds and efficiency to effectively compete for and maintain customer loyalty.

Worse still, retailers are facing rising shipping costs, with UPS and FedEx announcing a 5.9% average rate increase late last year. As a result, retailers are grappling with higher logistics expenses while striving to meet consumer expectations for seamless shopping experiences — pushing them to further enhance their fulfillment capabilities.

As the spotlight intensifies on fulfillment, sellers must be increasingly vigilant about shipping promptly and preventing stockouts. Take Amazon, with its introduction of new FBA fees. While the e-commerce giant will offer sellers a grace period of 4 weeks post-Prime Day, sellers must be proactive in managing inventory during periods of high consumer demand and fluctuating stock levels to avoid fees. 

Fulfillment becomes particularly critical amongst retailers and e-marketplace sellers alike during major events. Think of this year’s upcoming Prime Day, where customers not only seek great deals but also expect timely delivery. As shoppers flock to Prime Day 2024 primarily for low prices and a wide selection of items, fast shipping ranks high among their priorities. Specifically, 64% of customers will opt for private label products if free shipping is offered. when choosing where to shop during these sales events. Slow shipments, poor communication, and other fulfillment mishaps can cost sellers 5-star reviews, a slew of returns and ultimately, customer trust. 

With profits and customer loyalty at stake, fierce competition in fulfillment has intensified among major e-marketplaces, from increasingly passing expenses to merchants through seller fees to leveraging artificial intelligence and predictive technologies and beyond.

How Major E-Marketplaces Are Faring

Amazon Makes Moves With AI

A look at the numbers puts into perspective Amazon’s fulfillment capacities:

• Last year, Amazon shipped more U.S. parcels than UPS, marking a first in the e-marketplace’s history. 
• In Q1, Amazon achieved its fastest delivery speeds for Prime members, with nearly 60% of orders in major U.S. metro areas arriving the same or next day in March.

As Amazon expands its supply chain efforts, it has also managed to cut costs in Q1 by increasing the number of product units delivered per box, boosting the North America segment’s operating income by $4.1 billion year-over-year, reaching $5 billion. 

Further gains from regionalized fulfillment operations also contributed to this increase. For instance, sellers have brought their inventory to just a few locations within Amazon’s network. This year, Amazon revamped its inbound fulfillment processes in the U.S. this year to position inventory closer to customers. 

Specifically, Amazon is now encouraging sellers to bring inventory to facilities closer to customers by implementing an “inbound placement service fee” earlier this year. The fee varies based on the item’s size and the facility location — for instance, Western U.S. locations likely face higher fees compared to other regions closer to facility locations.

In addition to its operational enhancements, Amazon is investing in new technology to optimize its fulfillment network. Known as “Project P.I.” (Private Investigator), this AI model leverages generative AI and computer vision to identify issues with customer orders in fulfillment centers.

Walmart Leverages Brick-And-Mortar Stores

Many retailers are increasingly using physical stores as e-commerce order hubs to boost delivery efficiency. For instance, Walmart’s 4,600+ U.S. stores have become a major strength in the fulfillment race, allowing the company to meet the growing online shopping demand without the costly network adjustments that Amazon has faced. Last year, Walmart’s store-fulfilled delivery sales nearly tripled over the past two years, reaching over $1 billion per month.

Walmart’s strategy has paid off, with more customers ordering online from Walmart as delivery times have quickened. Over the past year, Walmart’s U.S. division delivered 4.4 billion items either same-day or next-day, with about 20 percent of those delivered in under three hours.

Like Amazon, Walmart has also invested in AI technologies to enhance delivery speeds. For instance, Walmart has deployed 19 autonomous forklifts developed by Fox Robotics in four of its advanced distribution centers.

Target Plays Catch Up

Target’s e-commerce success hinges on its ability to compete with giants like Amazon and major retail chains like Walmart, which are also investing heavily in their digital services. Similar to Walmart, Target’s solution lies in optimizing its existing assets—its extensive network of brick-and-mortar stores—to enhance its digital capabilities.

Specifically, approximately 25% of Target’s 1,800 stores, totaling 460 locations, are now equipped for online order fulfillment — these stores managed 30% of the retailer’s total e-commerce sales last year.

Target has also introduced an “Available to Promise” program ensuring precise order fulfillment timelines by using embedded tags in product packaging to track item locations. This innovation is crucial for efficiently fulfilling nationwide online orders from their network of distribution centers, preventing issues where products that are listed as available for purchase online cannot be found in the designated locations.