Significant advances for same-day delivery
Increasing the speed of delivery time and offering same-day service has recently become a top objective of many businesses. When you consider how frequently increases in the speed of technology and communication come forth, this seems almost overdue. However, it isn’t the first time that a surge for same-day delivery has come about.
In a recent article in The Verge, Editor Ben Popper recounts, “During the height of the dot-com bubble, a gaggle of services like Kozmo, Webvan, and UrbanFetch promised to let customers order anything off the internet and have it delivered in less than an hour. It didn’t matter whether you ordered five bags of groceries or a can of Coke: there was no extra charge. These companies raised gobs of money, expanded like mad, and went kaput faster than a bike messenger could hand-deliver you a pack of gum.” After a long hiatus, companies are now making strides towards bringing back this service, raising many questions.
Why are retailers pushing to make this happen right now?
We’ve all witnessed online sales grow around us. The current growth rate is 15.8 percent and as the percentage of our population comfortable with technology continues to grow, so will online sales. In 2012, Walmart alone generated over $7 billion in online sales and total U.S. online sales were $225 billion.
Along with the rise in online sales, there has been a trend toward further aligning all avenues of transaction. The omni-channel, which calls for complete and omniscient integration, has replaced multi-channel communications which merely aimed messages at customers though different channels. A recent article in Forbes explained, “retailers strive to build a true omni-channel that merges at-home, in-store and mobile commerce into one seamless experience.” This means not just buying, but also returning in multiple ways, and calls for integrated data systems and internal communication streams. As retailers and marketers continue to focus on increasing the appeal of online shopping, it will spur further growth.
Offering same-day delivery goes hand-in-hand with improving communications as a part of enhancing the experience of online shopping. The efforts to shorten the delivery time are led largely by Amazon. This online shopping giant has offered same-day delivery through their Local Express Delivery Option since 2009 in select locations such as Baltimore, Chicago, Indianapolis, New York City, and other urban centers. They charge a competitive price of $8.99 per delivery plus $0.99 per item.
For years Amazon avoided establishing a large physical presence in states that could potentially force it to collect sales tax from customers.
After years of having a few large distribution centers in out of the way places, Amazon altered their business model and in 2010 started building warehouses everywhere. A Businessweek article explains, “The e-commerce giant has invested roughly $13.9 billion since 2010 to build 50 new warehouses, more than it had cumulatively spent on storage facilities since its 1994 founding […] Amazon aims to be able to deliver most items the day they’re ordered, so it can keep rivals such as eBay (EBAY) and Wal-Mart Stores (WMT) from peeling off customers.”
What makes this development especially surprising is that for years Amazon avoided establishing a large physical presence in states that could potentially force it to collect sales tax from customers. They’ve since determined that the benefits of quicker deliveries and lower transportation costs outweigh the advantage of evading taxes. And if Amazon going to pay taxes, they want to make sure everyone else does too – they’ve spent $2.5 million in 2012 alone lobbying for issues included in the Marketplace Fairness Act, a law they once fought fiercely against. This bill (S.743) cleared the Senate in May and awaits passage in the House.
In the latest development, just this week it was announced that USPS will deliver on Sundays for Amazon. This is a first for both and an interesting development considering recent efforts to halt Saturday delivery. Although first class mail delivery is usually a loss for the USPS, and this is especially true on Saturday, package delivery is profitable any day of the week. For this holiday season, Sunday delivery will be limited to Los Angeles and metropolitan areas of New York, and in 2014 it will expand to other cities.
These large scale shifts have certainly caught attention and competitors are now creating or expanding their own same-day strategies. The peer following the closest on Amazon’s heels is eBay. In a press release on October 22nd, they announced amongst other things the expansion of their same-day delivery service, eBay Now, to 25 markets by the end of 2014. This will include major metropolitan areas like Chicago, Dallas and London. eBay Now launched in 2012 in the Bay Area and Manhattan, charging only $5 per store. To gain new technology and talent for the expansion, eBay recently acquired a startup courier network called Shutl.
The President of eBay Marketplaces, Devin Wenig, commented "Traditional retail isn't going away. But it is transforming, and that creates enormous opportunity within the $10 trillion total commerce market." One way they are capturing this opportunity is partnering with retailers such as Target, Walgreens, and Best Buy to offer same-day delivery from these stores, as well as many others.
The retail giant Walmart made their own move toward same-day delivery just in time for the holiday season in 2012 in Northern Virginia, Philadelphia, Minneapolis, and the Bay Area. Their program is called “Walmart To Go” and they charge a $10 flat-rate, working with UPS to complete the deliveries. Just before this in 2011 they started testing same-day grocery delivery in San Jose and San Francisco, and just a few weeks ago in mid- October, they announced expansion of their grocery segment of same-day delivery into Denver. Amazon also is experimenting with the logistically challenging grocery delivery market—they started in Seattle and this summer expanded their service, called AmazonFresh, to Los Angeles.
And of course, Google couldn’t resist entering their algorithms into the mix in efforts to grab up as much of this market as possible. They made their public debut of same-day delivery this fall in most of the Bay Area. Currently, similar to eBay, people in the Bay Area can order products from businesses like Target or Walgreens and have everything delivered by Google for only $5. Based on how the beta testing pans out, this service may expand to other locations. For tackling logistic objectives like mapping out effective delivery routes, it’s hard to imagine anyone better suited than Google.
Will this be a profitable venture or will it only be a way to attract and retain customers?
Profitability is a major question. The key players have already set out with low prices for this service that range around $5 to $10. The actual cost of delivery is often more than this in reality and some estimates put the average same-day delivery as high as $35. So what should be done when there’s a cost disparity? Should a retailer pass on the full cost? Should they absorb the extra expense in order to offer a service customers will appreciate? Or should they stay out of the game altogether?
For many retailers, the best route will be to test a program and see if it will work for their business model. A recent Forbes article, “Amazon, Ebay, Walmart Same-Day Deliver, But Should You?” cautioned those without large volumes against diving into same-day delivery. The advice offered for small to mid-size retailers is to try testing different variables such as select cities, select time periods, and different delivery methods, and to watch and wait to see what happens with larger retailers before making a major investment.
One important consideration to look at is the reason that others have entered this market recently, and most likely at a loss. Amazon has initiated their program largely to increase the number of transactions each customer makes, and Google and eBay have stepped into this arena largely for the data it enables them to collect. Rick Heitzmann, a tech investor with FirtMark Capital and backer of Zipments, explains “for them it's not about making money on the delivery service. It’s about getting people’s payment info into their system so that shopping with them will be seamless in the future." They’re offering the service as a loss leader to gain new customers or keep them coming back.
Certain markets, however, may be able to pass on the full cost of same-day shipping. After initial trials this summer, a high-end Pinterest-like shopping site called Fancy recently began offering same-day delivery in 100 cities around the world (61 of which are in the U.S.) and charge a $30 flat fee per item. The high-end items they offer makes this price stand out less than it would on a grocery bill from Walmart. It’s yet to be seen whether or not they will be successful in the long run.
Is same-day delivery a fad that will soon pass or a new standard for everyone to meet?
Developing a same-day delivery program is a huge undertaking and it’s questionable whether or not it will be worthwhile for every business to provide this offering. According to a study completed by Boston Consulting Group, when 1,500 U.S. consumers were surveyed only 9% of these cited same-day delivery “as a top factor that would improve their online shopping experience, while 74% cited free delivery and 50% cited lower prices.” While both quicker delivery times and lowers prices are seen as advantages by customers, this study indicates that it’s far more valuable to pursue the latter.
However, it’s hard to argue with the appeal of receiving something the same-day. Many of us have heard a friend or family member tell a story about ordering something online and receiving it much quicker than expected. The delight expressed in these stories is evidence of an underlying wish to receive purchases extremely quickly. It’s also hard to imagine that Amazon and other major retailers would invest significantly in same-day delivery without there being enough promise of a return on investment to move forward.
Where do we go from here?
One thing that’s clear is that despite the advances in technology and communication, same-day delivery is a significant logistical challenge. Owning the same-day delivery market could be a key strategic advantage for retailers that have significant online shipping volumes though, so it may be a challenge worth rising to for many. Whether or not it’s worth pursing, it is certainly worth following and exploring.
What experiences have you or your company had with same-day delivery? What questions do you have about this service? How have you seen it impact the logistics and retail industry?