8 ways Amazon can shake up a city

November 16, 2018 10:45 AM

Amazon is rightfully thought of as an e-commerce juggernaut, but the company's latest move — opening additional headquarters in the New York and Washington, D.C. areas — has drawn attention to how its presence changes the physical world.

But the company can still have a major impact, even if it doesn't locate a significant staff presence in a particular area. Amazon has targeted individual cities as proving grounds for numerous initiatives as it looks to disrupt traditional approaches to retail.

This item is compiled from reporting by PaymentsSource writers including John Adams, Kate Fitzgerald, David Heun and Michael Moeser. Click the links in each item to read more.

The Amazon commute

View of Seattle's Space Needle from Amazon.com's headquaters

The Space Needle stands past one of three large spheres under construction at the Amazon.com Inc. campus in downtown Seattle, Washington, U.S., on Friday, May 6, 2016. Amazon.com Inc. plans to eliminate gaps in its free same-day delivery service in all 27 cities where it is offered, responding to complaints that some minority neighborhoods are excluded. Photographer: David Ryder/Bloomberg

David Ryder/Bloomberg

Amazon made reliable transit part of its criteria for choosing its second U.S. headquarters and has already invested $60 million in transit in Seattle, where its main headquarters resides, for increased bus frequency and the city’s new streetcar system.

New York in particular has struggled to replace its aging MetroCard system Past attempts to modernize the Metropolitan Transportation Authority's system failed to improve upon this process; card swipes at the turnstile must be approved within 300 milliseconds, but credit and debit card payments can take much longer. Even MetroCards, which date to 1994, have a high failure rate.

The influx of 25,000 daily commuters will add more volume to transit systems, particularly since New York and Washington are among the few metro areas in the U.S. with comprehensive heavy rail mass transit—New York and Washington are two of the top three cities in terms of travel percentage by mass transit. These commuters will also spur business development near the new offices, further boosting commuter volume.

That would require improvements for both cities' transit systems, which already face myriad problems and have long-standing improvement projects underway. This includes ticketing, where the D.C. Metro has been trying to migrate riders to Google’s mobile payment apps over the past several years, while New York is trying to introduce contactless payments.

Key to the city

Daniel Brendoff sorts boxes before loading them onto trucks for shipping at Amazon.com's fulfillment Center in Fernley, Nevada on Tuesday, December 13, 2005. Between Thanksgiving and Christmas the Fernley Center will process approximately 2 million orders. Ken James/Bloomberg News

KEN JAMES/Bloomberg News

Despite the nationwide uproar that followed the announcement of Amazon Key — an opt-in program that allows shoppers to let couriers inside their homes for deliveries — Amazon was a lot more targeted in its rollout.

Amazon Key is available in just three dozen cities in the U.S., likely chosen based on residents' concerns around package theft.

With Amazon Key installed, the courier scans the package's bar code which sends an access request to Amazon's cloud. When Amazon grants permission, the camera set up inside the home starts recording and the door unlocks. The courier can then leave a package just inside the door, and lock up afterwards.

The recipient gets a notification that the delivery has been made, along with a video of the drop-off for reassurance that the courier acted correctly.

The Whole Foods makeover

Signage is displayed in at an Amazon.com Inc. Pop-Up store inside the Lakeview Whole Foods Market Inc. store in Chicago, Illinois, U.S., on Monday, Nov. 20, 2017. Amazon.com Inc. is betting that people shopping for discounted organic Thanksgiving turkeys at Whole Foods this week may decide to pick up an Echo digital assistant as well. The company is using the holiday moment and its broader brick-and-mortar presence to further a lead in the emerging market for voice-activated smart home speakers. Photographer: Daniel Acker/Bloomberg

Daniel Acker/Bloomberg

Whole Foods may have far fewer stores than the likes of Walmart or Target, but it's a significant retail presence for Amazon, which bought the grocery chain in mid-2017 for $13.7 billion.

Though many people expected a high-tech overhaul that would transform Whole Foods into something like Amazon Go, where customers don't have to wait on line to pay, Amazon's changes have been more gradual.

First, the e-commerce giant began stocking its own smart devices such as the Amazon Echo smart speaker in Whole Foods stores. Eventually, Amazon began adding perks for people signed up for its Prime Now service, which provides free two-hour delivery of products in 50 cities worldwide.

In February of this year, Amazon began rolling out a free two-hour delivery service of natural and organic products from the grocery chain in four cities: Austin, Cincinnati, Dallas and Virginia Beach.

Amazon also made Whole Foods a centerpiece of Prime Day, the e-commerce giant's self-branded shopping holiday in July.

A store based on customer reviews

Most Wished For section in Amazon Books store in Seattle

David Ryder/Bloomberg

Amazon has begun selling its highest-rated products in retail stores in just three cities: New York, Lone Tree, Colo., and Berkeley, Calif. The idea behind the 4-star store is to bring to a retail setting the assurance that customers get from looking at their peers' product ratings; the average rating of all products in a 4-star store is 4.4 out of 5 stars.

But the rating isn't the only criteria for inclusion.

"Throughout the [New York] store there are features like 'Most-Wished-For,' a collection of products that are most added to Amazon.com Wish Lists; 'Trending Around NYC,' hot products that NYC-area customers are buying on Amazon.com; 'Frequently Bought Together'; and 'Amazon Exclusives,'" Amazon explains in a September blog post.

There's a loyalty component as well; Prime members pay the discounted "Amazon.com price" in the store.

A 'fresh' approach to grocery stores

An AmazonFresh Pickup location stands next to the Starbucks Corp. headquarters building in Seattle, Washington, U.S., on Friday, May 26, 2017. Amazon.com Inc. opened two grocery pickup kiosks in Seattle, part of its latest effort to enter the $800 billion grocery market and compete with "click and collect" shopping options from big box competitors like Wal-Mart Stores Inc. Photographer: David Ryder/Bloomberg

David Ryder/Bloomberg

AmazonFresh was a grocery delivery service Amazon operated in a few targeted markets, but scaled back after its purchase of Whole Foods (which likely gave Amazon a new grocery distribution network to work with). It operated in New York, New Jersey, Pennsylvania, Maryland, Virginia, Connecticut and California.

The concept also inspired With AmazonFresh Pickup, a project unveiled in the summer of 2017 with a model that allows shoppers to pick up groceries at a set time, rather than wait for them to be delivered. Amazon operates two AmazonFresh Pickup locations in Seattle.

AmazonFresh (with or without the Pickup option) was marketed as a luxury. It cost $14.99 per month on top of the $99 annual fee for Prime membership, and in concept it was little different from the online ordering systems in place at many traditional grocery stores.

One interesting detail is how the AmazonFresh Pickup stores operated under the same philosophy as the walk-in Amazon Go store — it uses cameras to identify customers by their license plates, thus speeding the process of delivering orders to their cars.

Even if these projects fizzle, they serve a purpose. Amazon needs to test and iterate in the wild rather than in a sterile environment such as a corporate campus. The e-tailer has the advantage of a blank canvas for designing the grocery store of the future, which may present a significant advantage in improving on the archaic model of pushing a heavily used cart through crowded grocery aisles.

Bigger than a PO Box

A student retrieves a package at the Amazon.com Inc. kiosk on the University of California, Berkeley campus in Berkeley, California, U.S., on Wednesday, Oct. 12, 2016. By the end of the year, Amazon will have staffed pickup kiosks serving more than 500,000 college students at 16 schools around the country. Students order items from Amazon.com Inc. and retrieve them from new pickup lockers. Photographer: David Paul Morris/Bloomberg

David Paul Morris/Bloomberg

Perhaps the most widespread of Amazon's physical-world experiments is the Amazon Locker, a receptacle for any delivery less than 19 x 12 x 14 inches in size. The idea is to allow deliveries to city residents who may not be able to receive packages in their apartments; or to commuters who don't want to leave a package unattended outside all day. Lockers can also handle returns.

Lockers were introduced back in 2011 in just three cities — Seattle, New York and Washington, D.C. — and today there are more than 2,800 of them scattered throughout over 70 cities throughout the U.S.

A big help to small merchants?

An American Express Co. chip credit card is arranged for a photograph in Washington, D.C., U.S., on Sunday, Oct. 15, 2017. American Express is expected to release third-quarter earnings figures on October 18. Photographer: Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

Amazon is typically thought of as a major threat to smaller stores (particularly booksellers), but many of those small stores have come to rely on Amazon as their biggest supplier.

This has led to unexpected collaborations such as the Amazon Business American Express card, a black, metal card designed in a vertical rather than horizontal format, falls directly in line with bolstering Amex's ongoing small-business strategy of the past couple of years — particularly in light of the loss of Costco Warehouse and JetBlue to its card portfolio.

The Amazon Business card, which debuted in October, moves Amex more into the day-to-day operations of the business owner. It's set up as a card for those merchants who buy from Amazon often, giving Amazon Prime members the option to get 5 percent back on a transaction, or initiate a 90-day interest-free payment term.

In addition, the card provides line-item information on purchases that small businesses rarely see on monthly credit card bills. The card connects to QuickBooks accounting software and the American Express Spend Manager, which allows the merchant to obtain receipts through a mobile app when not at the office.

Where will Prime Air land?

Amazon Prime Air — the company's ambitious drone-based delivery service — is still a pie-in-the-sky project, but it's being tested in multiple locations worldwide, including the U.S., the U.K., Austria, France and Israel.

The concept is meant to provide delivery of small packages in 30 minutes or less, and these small drones could have a huge impact on a city's airspace.

"We're working with regulators and industry to design an air traffic management system that will recognize who is flying what drone, where they are flying, and whether they are adhering to operating requirements," Amazon says on its Prime Air description page.

Amazon isn't the only company in this airspace race; Worldpay and JD.com are also exploring drone-based fulfillment, with JD.com receiving regulatory approval for deliveries in rural areas of China last year.