Amazon Has a Nuclear Option Against Walmart and Other Competitors

I recently wrote an article titled, “Did Walmart Convince FedEx to Dump Amazon?” in which I made the argument that Walmart coached FedEx to make the decision to end its Express shipping contract with Amazon. It’s no secret that the relationship between Amazon and FedEx has soured as Amazon increasingly grows its logistics business. For several years, FedEx founder and CEO Fred Smith repeatedly made the comment that Amazon “isn’t a threat to FedEx.” But now, Smith has conceded that Amazon is indeed a competitor and has begun to reference the growing threat of companies like Amazon that have created their own logistics capabilities.

Walmart and Amazon have greatly increased their focus on each other with both companies seeking ways to gain the upper hand on the other through strategy and logistics. In the span of less than 30 days, both Amazon and Walmart have made a series of announcements related to same-day shipping, with Amazon one-upping Walmart by announcing free shipping on 10 million items for Prime members. I expect to see the logistics battle between Walmart and Amazon increase as each company attempts to grow its customer base and increase the volume of products sold and delivered.

However, at some point in the retail industry, someone must make a big move that will severely disrupt other retailers, while creating a nearly insurmountable competitive advantage. The tit for tat taking place among retailers, especially Walmart and Amazon, isn’t sustainable. I believe the company best positioned to make a big move is Amazon.

Thinking Big at Amazon

Amazon is a company of big thinkers. In fact, one of Amazon’s leadership principles is ‘Think Big,’ and the term is frequently spoken inside the company. For Amazon to grow and take market share away from Walmart and other retailers, Amazon must increase the size and scope of its logistics network and capabilities. Brick and mortar retailers are experts at moving pallets. Amazon has expertise in shipping packages. Therefore, Amazon requires a more extensive last-mile delivery capability than traditional brick and mortar retailers. Amazon has plans to invest an additional $800 million in 2019 on its logistics network, but it’s not enough to give Amazon a competitive advantage. Walmart, and even Home Depot, are investing billions in their e-commerce and retail logistics capabilities as well. Again, tit for tat.

I believe the time has come for Amazon to go nuclear on Walmart and every other retailer in the U.S. How? By acquiring the U.S. Postal Service (USPS).

The name of the game for Amazon is delivering packages to consumers in every city and state where they live. Period. Big city, small city. Rural or urban, it doesn’t matter. As Amazon’s e-commerce business grows, so too does the need for drivers to deliver packages. Unlike traditional retail shopping, where customers walk into a physical retail store to buy products off the shelf, e-commerce succeeds by shipping products directly to the customer’s home. Last-mile delivery is inherently unprofitable as most delivery trucks must travel long distances between deliveries. Operating a delivery truck costs money, and drivers don’t drive for free. The economics of last-mile delivery improve when delivery vehicles drive less miles and deliver more packages in a smaller radius from where they departed.

Amazon and the US Postal Service

An even bigger issue facing Amazon, however, is the fact that Amazon’s growth has raised a series of red flags with members of Congress, President Donald Trump and several Democratic candidates running for president. Amazon is under a microscope and the heat is increasing.

To solve its problems, I believe Amazon should proactively approach Trump with a solution for how to make the USPS more efficient and eliminate the significant losses in revenue experienced by the postal service. The USPS has lost $69 billion since 2007 and will continue losing money unless there are major reforms. The agency has $110 billion in unfunded liabilities for retiree pension and health care, and its workforce is accruing more retirement benefits every year. Without major restructuring, the USPS is expected to lose tens of billions of dollars over the next decade. The Government Accountability Office (GAO) has put the USPS on its “high-risk” list for its dismal financial outlook. Of all the issues on Trump’s radar, solving the riddle of the U.S. Postal Service should be one of his major priorities.

I am not advocating that Amazon acquire the USPS to only ship it’s own packages. Amazon would be required to ship mail and packages for any company that contracts the USPS. The strategic value to Amazon is that competitors couldn’t dump the USPS as there isn’t a viable alternative. Instead, companies would have to accept the fact that Amazon now delivers their packages.

Specifically, what I recommend is the following:

1. Amazon has contracts with government agencies, including a 10-year contract with the CIA to meet their cloud technology needs utilizing AWS. Amazon is favored to win several pending cloud computing contracts for additional government agencies in 2019. Contract Amazon to run the technology of the USPS on AWS for 10 years.

2. Request money from Congress to fund the unfunded liabilities of the USPS and ask that they remove several archaic rules that prevent the USPS from competing more effectively.

3. Contract Amazon to work jointly with the leadership of the USPS to utilize Amazon’s expertise across logistics and last-mile delivery to identify the optimal transportation and logistics network for mail and package delivery.

4. Contract Amazon to run the USPS for 10 years with an option for Amazon to acquire the postal service. At the end of 10 years, a structured bidding process should be put in place to allow Amazon and other companies to formally bid to acquire the USPS. (Multiple studies funded by the U.S. government regarding the postal service have recommended privatizing the USPS.) If the goal is to privatize the U.S. Postal Service, then the USPS must be acquired by someone. My vote is that Amazon should acquire it.

5. Sell the naming rights of mailboxes to Amazon and give Amazon the authority to define, design, remove, install, manage, utilize and maintain mailboxes. Set a fee for UPS, FedEx and other shippers to deliver packages to a mailbox. (This is significant in terms of allowing Amazon to leverage its lockers to modernize the postal service and provide consumers with a much better customer experience.)

6. Modernize the concept of postage and eliminate the use of stamps.

7. Contract Amazon to identify the optimal business model whereby physical/online retail can be integrated into the postal service ecosystem to generate additional revenue. There are 31,324 post offices in the U.S. Imagine if Amazon was given the flexibility to close post offices and move the services provided by the USPS into Whole FoodsAmazon Go or some other retail format. Amazon could also provide pharmacy, banking, health clinics and other services. In many cities and states where post offices are located, there are no grocery or convenience stores. Amazon could change the equation, leading to tremendous value being generated.

8. Give Amazon the authority to make acquisitions like acquiring XPO Logistics or another third-party logistics company to give the USPS increased capabilities in shipping and delivering products too large to fit into the traditional parcel network (furniture, exercise equipment and other heavy/bulky products). This would generate additional billions in revenue for the U.S. Postal Service.

9. Allow Amazon to form strategic partnerships with any company of its choosing, if doing so improves the customer experience; enhances efficiency; reduces costs and complexity; and increases the viability of the USPS to generate revenue and profits.

Amazon fulfillment cent

In its war against Walmart and other retailers, Amazon acquiring the U.S. Postal Service would be viewed as the nuclear option due to the massive impact on the companies Amazon competes with the most. For Amazon, acquiring the USPS would be viewed very positively by Congress; Amazon, the company that only cares about itself, could become the savior for a money-losing enterprise (the USPS) and generate tremendous good will on behalf of Congress and the American people.

In addition, Amazon would gain access to 158,600,000 delivery points; 231,843 delivery routes; 232,372 delivery vehicles; 634,447 employees; and $70 billion in annual revenue. Stated another way, Amazon would become the owner of the largest last-mile delivery network in the United States. Giving Amazon the flexibility to rationalize the workforce of the USPS, to close and relocate post offices, to build and open combined retail/postal service locations, and to increase the scope of services provided by the USPS would solve the issues currently plaguing the U.S. Postal Service. Additional ideas for how to make the USPS more efficient can be found here.

To eliminate any concerns over Amazon “gaming the network” to give itself an advantage over shipping products for other companies, Congress could mandate that the GAO and several third-party firms audit Amazon’s pricing and operations to ensure fairness and transparency.

Amazon acquiring the USPS is not a fantasy. If Jeff Bezos made the decision to work with Trump and members of Congress, Bezos could negotiate a deal leading to Amazon eventually acquiring the U.S. Postal Service. From a strategy point of view, I believe Amazon acquiring the USPS is the single largest move Amazon could make to create an insurmountable competitive advantage as it relates to logistics and last-mile delivery. I also believe it’s the best way for Amazon to change the narrative in Congress that Amazon should be broken up. Only time will tell if what I have written becomes a reality.

Source: https://observer.com/2019/06/amazon-us-postal-service-acquisition/

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