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Dated August 7, 2012.

Amazon's New Secret Weapon: Delivery Lockers

Online Retailer Expands Use of Cabinets for Package Deliveries

By GREG BENSINGER

Bryan Thomas for The Wall Street Journal

An Amazon Locker in a New York City grocery store. The online retailer has opened at least 50 self-service pickup stations in a few U.S. cities.

Amazon.com Inc. AMZN +1.88% is doubling down to combat a problem that has long bedeviled online retailers: failed package delivery.

Dude, where's my Amazon package? WSJ's Marcelo Prince visits Mean Street with details of a new way Amazon hopes to solve the problem of failed package delivery. (Photo: AP)

The Web giant has quietly installed large metal cabinets—or Amazon Lockers—in grocery, convenience and drugstore outlets that function like virtual doormen, accepting packages for customers for a later pickup. Amazon began putting lockers in Seattle, New York state and near Washington, D.C., about a year ago.

And the company is now ramping up the service. In the past few weeks, Amazon has opened its first lockers sites in the San Francisco Bay area.

By adding the lockers, Amazon is addressing the concerns of some urban apartment dwellers who fear they'll miss a delivery or have their items stolen from their doorstep. Amazon is also taking on some of its rivals who are shipping to appointed sites, such as other retailers or United Parcel Service Inc. UPS +0.05% stores.

"The home-delivery challenge has always been an issue for e-commerce in Europe and Japan, and is growing in the U.S., especially as thieves have moved into the game," said Fiona Dias, chief strategy officer for ShopRunner, which facilitates two-day delivery at about 60 retailers. "It's easy to follow a UPS truck around and steal packages from doorsteps."

Amazon is borrowing a tactic from traditional retailers, like Wal-Mart Stores Inc. WMT +0.77% and Best Buy Co., BBY -3.89% that have added pickup sites so that online customers can stop by a store to get their merchandise. Without stores of its own, however, Amazon has to find partners who will provide space for the lockers.

The addition of the Northern California locations brings to at least 50 the number of lockers that Amazon has in the U.S., according to its website. The Seattle-based company also offers lockers in the U.K. and is "adding new Amazon Locker locations every week," according to its website.

The four U.S. cities with Amazon Lockers in place are in states that already charge Amazon customers sales tax, or have plans to do so within the next year. It's unclear if future locker sites would trigger a sales tax.

Spokeswoman Mary Osako declined to say how many lockers Amazon has or which cities it will target next.

Packaging and shipping orders is a central expense for Amazon, which has been building warehouses to speed delivery times. The company spent $1.36 billion on order fufillment in the second quarter, up from $941 million a year earlier.

Amazon's locker program works fairly simply. Customers who ship their item to a locker—typically in 7-Elevens, grocery or chain drugststores—are emailed a code after a package arrives that unlocks the door holding their merchandise. The lockers can hold only smaller items that weigh less than 10 pounds, such as books, DVDs or electronic devices like iPads. Users have several days to retrieve their merchandise.

Users don't pay extra to use the service but the locker program helps Amazon save on certain shipping costs. ShopRunner's Ms. Dias said UPS and FedEx Corp. FDX +0.24% charge retailers as much as 20% more to deliver packages to residential addresses because it is more efficient to deliver multiple packages to a business address. Failed deliveries are also more expensive for online retailers because those consumers are more likely to call customer service, switch to a competitor, or get a replacement item.

Amazon avoids much of that with guaranteed delivery to its lockers, often housed in locations operating 24 hours a day. "When customers ship Amazon orders to an Amazon Locker, they can pick up their packages at a time and place that's convenient for them," said Amazon's Ms. Osako.

Amazon pays a small fee each month, akin to rent, to 7-Eleven and other store owners where it has lockers. Store owners declined to say what the fee was and a spokeswoman for 7-Eleven declined to comment.

Wine salesman Robert Thorpe, 35 years old, last month had his Sonicare electric toothbrush delivered to an Amazon Locker in a grocery store in Manhattan instead of his typical apartment-building drop-off.

"This seemed convenient. I didn't even realize this was an option so I thought I'd try it," said Mr. Thorpe, who said he frequently misses package deliveries for which the building superintendent signs while he is at work. "If I knew I was going to be away from home, I'd do it again."

Retailers in North America have taken a variety of tacks to help ensure package delivery. ShopRunner, in Conshohocken, Pa., earlier this year bought a start-up called PickupZone to allow retailers to ship packages for pickup at other retail locations. So, for example, a customer can order a board game online from Toys "R" Us and have it delivered to a nearby Sports Authority store.

That is similar to a program offered by Kinek, based in Saint John, New Brunswick, which has about 1,000 sites where U.S. customers can have packages sent, such as postal stores and self-storage warehouses. Users pay a fee for their packages that is set by the stores.

Amazon, too, is experimenting with a similar service in the U.K., which it calls Collect+. According to its website, users can arrange to have packages delivered to shopping centers, convenience stores, newsstands and train stations.

Lockers is "an interesting experiment for Amazon, though it's not clear it will be a huge business for them in the U.S.," said Brian Walker, a Forrester Research analyst. "This could be much more important for them internationally if the test works, such as in China, where many consumers don't have home addresses that can accept packages."

The services are also attractive for customers with a particular need for privacy.

"Adult products are still a very significant part of online sales," said Mr. Walker. "This certainly gives consumers a new way of getting those items."

Write to Greg Bensinger at [email protected]

Amazon's New Secret Weapon: Delivery Lockers