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Packaging: Amazon's Bezos envisions package-delivering drones, crowd-sourced demand

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Packaging: Amazon's Bezos envisions package-delivering drones, crowd-sourced demand

December 06, 2013 - 09:18

OAKLAND, CA, Dec. 6, 2013 (PPI Pulp & Paper Week) -From drones that would drop packages on a home's doorstep to crowd sourcing for determining product demand, Amazon founder Jeff Bezos this week outlined some of the ways his company may uproot and reconstruct US retail and grocery business.

While his nearly $70 billion/yr company now spends more than it earns in revenue, Bezos said on CBS' 60 Minutes news show on Dec. 1 that his firm has an unstoppable view of how it can alter traditional consumer shopping.

"You got to earn your keep in this world. When you invent something new, if customers come to the party, it's disruptive to the old way," said Bezos, when questioned by CBS' Charlie Rose about how the "Power of Amazon" could affect smaller firms including book publishers.

The 'future' and book selling."The Internet is disrupting every media industry," he said. "You know, people can complain about that, but complaining is not a strategy. And Amazon is not happening to book selling, the future is happening to book selling."

The recent acquirer of theWashington Post, Bezos said customer wants and large volume are most important to Amazon, a firm that now operates distribution plants along with consumer products giants like Procter & Gamble, delivers food on a same-day basis in Los Angeles and Seattle, partners with the United States Postal Service on Sunday packaging deliveries, and operates 96 warehouses around the world, with most of them in the USA. The firm lost $41 million in the third quarter, an improvement from a $274 million loss in third quarter 2012.

Eighty-six percent of the products that Amazon delivers weigh up to 5 lbs.

Bezos' CBS interview claim that drones could be delivering Amazon packages to homes by 2017 or 2018 attracted widespread 'Cyber Monday' news coverage, and an executive with a US folding carton and packaging company late this week said his firm had met to discuss Bezos' comments.

International Paper (IP) chmn and CEO John Faraci said IP sells to "some of the big online shippers in a big way and their business is growing at 20%, 25% per year."

"It's still not a huge -- it's a very visible consumption of corrugated because it arrives on your doorstep every single day. In and of itself, it's not a big user but if it continues to grow at 20% to 25% a year going forward, it's going to be a big segment and we are very well positioned in it and we see that strength of online sales in our shipments," said Faraci on Dec. 4 at Citi's Basic Materials conference.

The carton/packaging company executive believes that an Amazon-type model of needing boxes of various sizes opens the possibility for "commingling of substrates" to do the job.

Picking box sizes.In its warehouses, Amazon hires a packer "who knows exactly how big of a box to use based on the weight and amount of items. Your address is slapped onto the box and then a picture is taken of your address labels, gadgets known as 'shoes' sort and divert the boxes to the appropriate spiral chute, based on the postal code," Amazon's Dave Clark told Rose. "The boxes are then loaded onto awaiting trucks, which are assigned to particular regions. ... Amazon uses more trucks than planes because so many distribution centers have been built near customers."

Bezos said that "if we can make this model work, it would be great because it extends the range of products that we can sell." He said Amazon puts the customers "at the center of everything we do" and with that comes a commitment of "trust" with the customers, which means the lowest pricing possible.

A key advantage for Amazon comes from the company's technology development, with the firm able to "store data and run websites for hundreds of thousands of outside companies and government agencies on what is known as the cloud," Bezos said.

300 orders a second.On Cyber Monday this week, Amazon reported a peak of 300 orders a second, ABC News reported on Dec. 2.

"It's moving online rapidly," said former Toys R Us CEO, Target executive, and McKinsey partner Gerald Storch of Storch Advisors in a TV interview on PBS on Dec. 2. He expects 15-20% online sales growth this holiday season vs the 2012 holiday season.

Still, Storch said that about 85-90% of products "in every [retail] category" are still sold in stores, and said that the growth in online shopping this holiday season is mostly from brick-and-mortar firms such as Walmart, Target, Toys R Us, Macy's, and Sacks Fifth Avenue.

Thanksgiving holiday weekend spending totaled an estimated $57.4 billion, down 2.7% compared with Thanksgiving 2012 spending, theNational Retail Federationreported. Shoppers totaled an estimated 141 million, up from 139 million.Cyber Mondaysales climbed 16% from last year to an estimated $2.29 billion, based on estimates.