Paul Demery, Internet Retailer CTO, recently compiled some telling observations on the successes and challenges associated with same-day delivery for e-tailers. Below, a summary of his major points. This is Part I in a two-part series; be sure to check out Part II for the full story!
The latest trend in online retail seeks to appropriate a long-held brick-and-mortar advantage: receiving goods the same day you shop for them. Sure, there hasn’t exactly been an uptick in consumer demand for same-day delivery, but retailers are taking the usual “customers don’t know what they want yet” approach here; in tandem with delivery companies, they’re striving to shave overhead low enough to drum up interest. Some are even taking serious risks in an effort to jump the gun.
Case in point: UK retail chain Argos, a subsidiary of Home Retail Group, experimented with free same-day delivery for online orders just before last Christmas. The offer was made available to about half of its customers, spanning 50+ UK towns. Results were modest and costly, but ultimately deemed effective in terms of expanding the customer base. In the opinion of Brian McCarthy, Argos director of home delivery, “the whole market of competition is changing […] loyalty to brand is less; loyalty to price is stronger.”
Argos collaborates with London-based Shutl in the delivery process. Shutl dispatches online orders to local courier services, factoring availability, location, and performance record into the decision. With outposts in New York, San Francisco, and Chicago—along with planned operations in 17 more North American cities this year—the company is poised to ride the same-day delivery wave.
The landscape is populating rather quickly. USPS launched Metro Post last November in San Francisco, testing the waters with 1-800-Flowers.com Inc. and other retailers. Wal-Mart Stores Inc. debuted Walmart to Go in five metro areas, delivering online orders by truck. The trend gained speed with eBay Now, a mobile app being tested by major retailers in New York and San Francisco, designed to coordinate local courier pick-up and delivery services. And, of course, Amazon.com Inc. has had a successful same-day delivery service in multiple U.S. markets for a few years now.
A Wrench in the Gears
In an atmosphere of stiff competition, many retailers feel compelled to at least explore same-day delivery to remain viable amongst such strong growth. But it isn’t all sunshine and roses; according to experts, the jury’s still out on whether it actually wins customers or pads profits. Compared with one- or two-day delivery and/or in-store pickup—a safer option for retailers with fulfillment centers in major markets—same-day delivery demands a premium, which naturally gets passed on to the customer. These fees average $10 for most orders, which turns out to be enough to scare many customers away. Once that threshold is passed, they’d much rather opt to inconvenience themselves by picking the product up in person. When Moosejaw Mountaneering introduced same-day delivery in Chicago and Denver-Boulder for order placed up until 5 PM Christmas Eve, no one ended up using the $14.99 service. CEO Eoin Comerford speculates that a lack of heavy promotion and customer trust may have had something to do with the lackluster results.
Light at the End of the Tunnel
That hasn’t stopped dedicated entrepreneurs, though. Shutl’s investors include UPS Inc., European delivery service GeoPost, and venture capital firms e.ventures, Hummingbird Ventures, and Notion Capital. That’s $5M+ in investments since October put toward marketing in the U.S. and Canada—not too shabby.
And the service itself isn’t stagnant, either. Seeking to one-up Amazon, the next generation of same-day delivery providers is expanding the traditional window from 7 AM to noon to 2 PM and beyond. Walmart.com, by comparison, allows shoppers to choose a four-hour delivery window, even late at night.
Same-Day Delivery in Action
Here’s a sampling of typical same-day delivery services for online orders:
• Shutl: Scheduled to launch Q1 in NYC, Chicago, and SF. Delivery available 24/7, or when stores or warehouses are open. Fee set by retailers; Shutl recommends < 5% order value.
• USPS Metro Post: Customers in SF can order online until 2 PM, receiving deliveries 4-8 PM. Fee close to standard ground shipping, which for many orders is ≤$10.
• eBay Now: Consumers in NYC and SF test markets can have a personal shopper pick up the items ordered from a retailer’s store and have them delivered 9 AM-6 PM most days, with extended holiday hours. Fee=$5, with $25 minimum order.
• Walmart to Go: Customers in five major metro areas—Northern Virginia, Philadelphia, Minneapolis, San Jose/San Francisco, Denver—can order online until noon, then choose a 4-hour delivery window running to late in the evening. Fee=$10.
• Amazon Local Express Delivery: Order deadlines range from 7 AM-noon in 10 major cities—Baltimore, Boston, Chicago, Indianapolis, Las Vegas, New York, Philadelphia, Phoenix, Seattle, and Washington—for delivery up to 8 PM. Fee=$8.99 per order or $3.99 on eligible items for Amazon Prime members, a program that also offers two-day shipping for an annual fee of $79.