Amazon shuts down Quidsi, shifts tech to AmazonFresh (AMZN)

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Amazon is shutting down Quidsi, the parent company of sites like Diapers.com and BeautyBar.com, according to The Wall Street Journal.

Amazon bought the firm in 2010 for over $500 million, but lackluster traffic and a costly free shipping policy made it an unprofitable unit for the e-commerce giant. Amazon plans to shift the shuttered company’s developers to the AmazonFresh team.

  • Integrating the Quidsi developers with AmazonFresh highlights the company's focus on growing its grocery business this year. AmazonFresh Pickup stores are slated for opening in 2017, and the company is continuing to test its convenience store format, Amazon Go. Grocery is an $800 billion industry and a major source of repeat purchases for retailers, which could mean a substantial boost to Amazon’s revenue if it breaks into this segment.
  • Meanwhile, Quidsi’s inability to turn a profit highlights the perils of free shipping. Without the benefit of Prime subscriptions, the sites operating under Quidsi could not recoup the costs of their free shipping offering. This indicates that while a perk largely sought after by consumers, free shipping can eat deeply into margins. Even Amazon itself has difficulty making its shipping policy work, as the cost of shipping is never fully covered by its shipping revenue — Amazon reported that net shipping costs were up 43% in 2016, at $7.2 billion.

Given the unprofitable nature of free shipping, smaller retailers that cannot afford to subsidize shipping costs or build logistics networks will likely find it difficult to compete. However, offering free shipping is in huge demand from consumers, and smaller companies risk losing sales if they do not provide it. To overcome this conundrum, smaller merchants may consider selling through Amazon to take advantage of the shipping discounts it receives.

Click and collect — a fulfillment option that lets shoppers place an online order and pick it up at a store — is thriving in the UK.

Over half of UK shoppers report having used this method in the past year, according to a survey from JDA & Centiro conducted in April 2016.

However, the US is far behind on the click and collect trend, with just 27% of consumers using the service. This is largely due to slower growth in mobile commerce, and specifically, the hesitancy shoppers feel about using mobile retail apps.

Retailers in the US can look to the growth drivers in the UK to help drive up their own click and collect sales. Most notably, mobile commerce and adoption by grocery chains are driving shoppers in the UK to use click and collect.

Nancee Halpin, research associate for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on click and collect that breaks down the growth factors behind click and collect in the UK. It also discusses the retailers successfully implementing the fulfillment method, examines the of impact consumer behavior, and outlines some key steps that US retailers can take to replicate the UK's performance.

Here are some key takeaways from the report:

  • The UK's click and collect market is expected to grow 78% by 2020, to £8.2 billion ($10.6 billion). Meanwhile, it is expected to reach £5.3 billion ($6.8 billion) by the end of 2016.
  • Click and collect is benefiting from consumer adoption of mobile commerce in the UK. Mobile is a fundamental driver because it affords consumers more flexibility in the purchasing process. As a result, many UK consumers are purchasing goods on their mobile phones, and then picking them up on the way home from work, the gym, appointments, etc. 
  • The service is particularly popular among grocery chains, with many of the UK's largest supermarkets offering click and collect. Since trips to the grocery store are made frequently and regularly, click and collect is a perfect fit for shoppers who want to avoid recurring issues like long checkout lines and crowded stores.
  • To grow click and collect in the US, retailers need to invest in their mobile presence and dedicate in-store resources to click and collect shoppers. Merchants should do more than just recreate the desktop browser experience on a mobile app — this includes employing tools like mobile loyalty programs, digital coupons, and social media integration.

In full, the report:

  • Sizes the market for click and collect in both the UK and the US.
  • Identifies the key growth factors that are making click and collect successful in the UK.
  • Discusses key players in the UK that are seeing success with click and collect.
  • Presents some of the challenges the US faces in spurring adoption.
  • Outlines future opportunities for US retailers to grow sales via click and collect.

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