Tom Caporaso, Author at Global Trade Magazine

Amazon’s desire to launch Amazon Prime Air, a fleet of delivery drones, is well-documented, but in the past couple of years, it’s been investing heavily in upgrading and expanding a much wider array of operations and logistics capabilities, partly to tame its growing shipping costs.

Amazon already has nearly 100 locations in North America dedicated to gathering, packing, and shipping online orders; last fall, it bought thousands of truck trailers to streamline the cost and process of getting those packages from its fulfillment centers to its sortation sites. This March, it leased 20 Boeing 767 cargo planes, each of which can haul over 85 tons of merchandise cross-country. It’s also contracted with bicycle couriers, delivery trucks, and car drivers to continue improving its order delivery times and lowering its costs.

Concurrent with these moves, the e-commerce giant has been steadily increasing its lobbying reach. As recently reported in The New York Times, Amazon was the fastest-growing tech lobbyist in 2015, spending $9.4 million. While that amount falls short of Google’s lobbying expenses, it’s almost twice as much as Amazon spent in 2014. The company has enlisted government insiders and former elected officials to try to influence pending federal legislation and regulations on drones, delivery truck sizes, highway improvements, and the U.S. Postal Service—issues that will have a significant impact on Amazon’s long-term plans.

Its most-publicized focus is on commercial drone regulations, which the Federal Aviation Administration (FAA) is expected to update this spring. The FAA and industry experts are justifiably worried about unmanned aerial vehicles (UAV) interfering with airplanes. Other concerns include operator standards, privacy and quality-of-life issues, and conflicting local, county, and state rules.

According to current FAA regulations, drones can’t be flown within five miles of airports, they must stay below 400 feet and 100 miles per hour, and they must stay within the operator’s line of sight. An operator can only fly one drone at a time.

Last year, Amazon and the Small UAV Coalition (which includes Prime Air and Google) sent letters to the FAA, protesting those rules. After receiving an FAA exemption last spring, though, Amazon has been testing its UAV capabilities out west. It’s also running tests in the Netherlands, England, and Canada, countries with less restrictive drone rules than the U.S. has.

Amazon took in over five times as much annual e-commerce revenue last year as its next-biggest U.S. rival did, so the advantages offered by its various fulfillment improvements and its growing army of lobbyists might seem like overkill. Amazon didn’t achieve its dominance by standing still, though, and it’s never been afraid to finance long-term growth initiatives, particularly when those investments carry so much promise.

Amplifying and solidifying Amazon Prime’s reputation for quick, free deliveries would help expand and lock down the company’s already-substantial audience of core customers. Pioneering and optimizing the field of retail drone deliveries would also go a long way toward helping Amazon cement its leadership position in e-commerce for the foreseeable future.

Drones aren’t the sole path to customers’ doors and hearts, however. Amazon is therefore urging Congress to fund road improvements, increase the allowable length of delivery trucks, and improve the Postal Service’s fortunes. Any one of these initiatives would increase the return on Amazon’s lobbying and infrastructure ventures; together, they would significantly enhance the company’s potential to maintain its status and achieve its overarching goal—to become not just the Everything Store but the Everything Business.

Tom Caporaso is the CEO of Clarus Commerce, a leader in e-commerce and subscription commerce solutions. Clarus Commerce powers FreeShipping.com and also customizes and manages programs such as Return Saver, which it codeveloped with FedEx, and 2-Day Shipping by MasterCard, for clients across a wide range of industries.

The 2015 holiday season offered more evidence that ecommerce is the engine driving retail growth. Overall retail sales increased just 3.3 percent from Halloween to January 4 and in-store traffic fell 6.4 percent in November and December, but online sales increased 13 percent during that time span. And, while early estimates for the holiday season, from Black Friday through Christmas Eve, found overall sales growing 7.9 percent, ecommerce sales over the same period rose 20 percent, aided by a 50-percent surge in smartphone transactions.

Even with all of its recent growth, ecommerce sales still comprise less than 10 percent of total U.S. retail revenue. Brick-and-mortar stores continue to account for the vast majority of sales, so retailers have good reason to focus on in-store sales. After all, that’s where the money is — right now.

The trend lines are unmistakable, though: online sales will keep growing for the foreseeable future, driven by mobile users and by increasing smartphone penetration. This, in turn, will increase the pressure on retailers to deliver more of these orders at no cost to their customers and minimum cost to themselves. Because up to 30 percent of all ecommerce orders are returned, depending on the category, online retailers will also have to find equitable ways to address the cost of shipping items back.

Shipping costs remain the leading cause of abandoned online carts, and free shipping is still the surest sales closer in that space. In fact, online consumers find free delivery extraordinarily appealing. Luckily for retailers, shoppers pay back sites that provide free shipping by increasing their order sizes by 30 percent on average.

Online shoppers aren’t just worried about the initial shipping costs, though; 88 percent of them cite free return shipping as an important factor in their purchase decisions. Fortunately, retailers that offer customer-friendly return options can expect to be rewarded for their generosity. Research shows that

41 percent of shoppers are more likely to place an online order if the store offers free returns, 95 percent say they’d shop again at an online retailer if they had a positive return experience.

Free return shipping clearly appeals to online shoppers, but most retailers have tightened such offers in recent years. Large chains can still assuage significant numbers of customers via policies that include free in-store exchanges and refunds. Aside from alerting shoppers to programs that provide free return shipping, though, there isn’t much (or much more) that retailers, especially smaller and/or online-only firms, can do to alleviate return shipping fees — for themselves or their customers.

Retailers are therefore concentrating primarily on the delivery side of online transactions — particularly the last mile, long considered the most expensive part. Amazon, Walmart, and others are testing airborne drones, although obstacles abound. Two Skype founders are trying a more earth-bound approach: delivery robots that can wheel up to two grocery bags of items to shoppers within about two miles of the merchant at 10 to 15 times less than the cost of current last-mile delivery alternatives. If successful, delivery robots could help smaller stores level the playing field with their larger brethren, at least locally.

As the retail industry grows more reliant on ecommerce, the success of individual retailers will depend, in strong measure, on their ability to satisfy consumers’ wishes: free deliveries, hassle-free returns, and, increasingly, mobile experiences. Stores that can figure out how to do all this affordably will gain and keep more customers (and stand a better chance to survive Amazon’s growing dominance). Stores that fail to give customers what they want will go the way of the dinosaur.

Tom Caporaso is the CEO of Clarus Commerce, a leader in ecommerce and subscription commerce solutions. Clarus Commerce powers FreeShipping.com, the pioneer of the pre-paid shipping and cashback movement.

Behind Amazon’s Increased Lobbying Efforts

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