One of the keys to Amazon.com's success — and a major reason for the struggles at brick-and-mortar retailers like Best Buy and Barnes & Noble — is the company's relatively low overhead. Amazon's customers shop online. The company doesn't spend money on retail locations, which allows it to sell products at a lower price than its competitors.
But just because Amazon does most of its business in the digital world doesn't mean the e-tailer is immune from real world pricing pressures. Once a customer buys a product from the site, the package still needs to get from point A (Amazon's warehouse) to point B (the customer). And all those shipments add up — totaling $1.36 billion in the second quarter alone.
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If a customer isn't home to receive their package, UPSor FedEx might need to return for a second or third delivery, and each of those attempts cost money. Shippers also charge Amazon more to deliver packages to a residence than to a business. Their reasoning: it's less efficient to deliver a single package to a person's doorstep than it is to send a bunch of items to one central location.
So Amazon is experimenting with a new approach: Amazon Lockers.
Colin Sebastian, Senior Research Analyst with Robert W. Baird & Co., says the move is a good one for Amazon. "On the financial side, they have the potential to save on shipping costs. They're spending a lot of money paying UPS and FedEx fees to deliver packages directly to people's front porch. Right now the savings would be insignificant, but if they were to roll this out more broadly at scale, then on a per-item basis the savings could be as much as 10 to 15 percent."
Here's how it works. Customers have the option of shipping their purchases to an Amazon Locker. The lockers are located in places like grocery stores and local businesses. When the package arrives, customers are emailed a code that opens the locker.
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Amazon pays store owners a small fee by Amazon to house the lockers; stores get the added benefit of increased foot traffic. Customers don't have to worry about being home to sign for their packages, or having them stolen from the doorstep while they're at work. And Amazon sees its shipping costs drop.
Sebastian says the benefits for Amazon don't stop there, "By installing these lockers, Amazon is getting closer to their customers on a local level, and that's something that shouldn't be underestimated."
The rollout of the program has been limited. The lockers are only available in select locations, including New York, Seattle, Washington D.C., San Francisco and London. And customers can only ship small packages, items weighing under 10 pounds.
But Amazon seems pleased with the early feedback. Mary Osako, a spokeswoman for Amazon, says, "Customers find Lockers to be another convenient option to receive their Amazon deliveries."
Amazon is not the only player in the space. Kinek, a Canadian company, offers a similar service with over 1,000 shipping locations in the U.S. Collectplus, a company based in the U.K., boasts more than 4,500 locations in that country where its members can ship and receive packages.
But with millions of packages sent each year, and a market cap of over $108 billion, Amazon.com is clearly the big kid on the block.