In “Ecommerce Briefs,” I address news and developments that impact online merchants. In this installment, I’ll report on FedEx severing its air-services relationship with Amazon and rolling out seven-day delivery, Amazon shuttering its social media platform Spark, Walmart folding Jet.com into its own website, and Toys “R” Us making a comeback.
FedEx Changes Strategy
FedEx Express
FedEx’s Express division offers date-definitive delivery services, usually one to two days. Earlier this month FedEx announced that it would not renew Express’s domestic air-delivery contract with Amazon. This coincides with Amazon expanding its own shipping and logistics services. The Amazon contract with the Express air division expires at the end of this month, but international operations and other services such as FedEx’s ground deliveries of Amazon products are unaffected.
FedEx said Amazon is a small contributor to its Express revenue, representing only 1.3 percent of air delivery sales in 2018. Logistic provider ShipMatrix’s CEO Satish Jindel estimated that FedEx’s domestic air business with Amazon was probably poised to decline anyway. Jindel estimates the total contract value between Amazon and FedEx to be about $840 million, with FedEx Express making up $150 million to $200 million of that value.
FedEx says its new focus will be on “serving the broader e-commerce market,” and believes its U.S. package volume from online shopping will double by 2026. FedEx said it would focus on customers such as Walmart, Target, and Walgreens.
In its fourth-quarter earnings press release, FedEx gave a less than positive prediction for 2020. “At FedEx Express, macroeconomic weakness and trade uncertainty, continued mix shift to lower-yielding services, and a strategic decision to not renew a customer contract will negatively impact operating income.”
FedEx is reportedly going to cut prices for some customers of its Express network later thіѕ month. That includes offering guaranteed two-day air service at the same price aѕ ground delivery. FedEx is attempting to lure customers from rival UPS.
The company also announced that FedEx Ground would launch year-round Sunday deliveries across most of the U.S. beginning in January 2020, and it will accelerate the process of redirecting nearly all shipments now routed through the U.S. Postal Service for last-mile delivery into the unit’s own network. FedEx plans to divert almost all of its postal business by the end of 2020. Currently about 2 million parcels a day are directed to the Postal Service for final delivery to residences. The Postal Service recently raised its rates for last mile delivery by 9 to 12 percent.
Amazon Extinguishes Spark
Earlier this month Amazon quietly eliminated Spark, its two-year-old social product discovery experiment that was supposed to compete with Instagram and Pinterest and let like-minded people connect. One of the major reasons for the failure was that while anyone could view content, only Prime members could post and comment. Also, Spark was accessible only through a mobile app, and brands were not given a method to engage with consumers.
Jet.com Folds into Walmart.com
Amidst falling sales, Jet.com is being merged into Walmart.com. While Jet.com will continue to exist, it will serve a niche market — large urban centers where Walmart has few or no stores. Thus far, Jet has focused mostly on New York. Walmart acquired Jet.com in 2016 for $3.3 billion not for its marketplace or products but for its infrastructure and tech prowess. As part of the changes, the role of Jet president will be eliminated.
Walmart.com initially had trouble gaining relatively affluent shoppers because of its image as a low-price retailer without trend-setting brands. Walmart has now achieved enough online success to overcome that perception. In 2018 Walmart’s online sales in the United States grew by 40 percent.
Much of the growth was related to its expanded grocery pick-up options, which will be available at 3,100 stores by year-end, up from the current 2,450. Walmart’s online grocery service has brought in many first-time shoppers — 40 to 60 percent of pick-up orders come from new customers. Investment firm Cowen and Company predicts that groceries will account for 33 percent of total Walmart digital sales by 2020.
The company also expanded its merchandise assortment and this year added online retailers, acquiring plus-size apparel brand Eloquii and launching its own mattress brand Allswell.
Toys “R” Us Resurrected
According to Bloomberg News, Toys “R” Us will reopen later this year with a smaller footprint of six brick-and-mortar locations along with an online store. The stores will be 10,000 square feet, one-third the size of previous locations. Toys “R” Us is now owned by a company called Tru Kids Inc., which was launched in Jan. 2019 after Toys “R” Us’s lenders canceled its bankruptcy auction.