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Same-Day Delivery Is Going to Be Big - Some Day

Same-day delivery of items ordered online or from stores is an irresistible idea. Now if retailers could only figure out how to make it work.

The concept goes hand in hand with the very nature of the internet – fast, efficient, readily available. If consumers today aren’t exactly demanding same-day delivery, they’ll want it when it arrives.

When, of course, is the big question. In most markets, same-day delivery appears prohibitively expensive, if not logistically unsound. (There are obvious exceptions, such as grocery delivery, corporate accounts and boutique-style services for very high-priced goods.) Which hasn’t stopped a number of providers from launching tentative efforts in that direction.

“Consumers are not the driver for the emergence of same-day,” says Rob Howard, chief executive officer of Grand Junction Inc., which sells a software platform for executing local delivery. “It’s really about competitive response.”

Meaning that just about every major retailing website feels that it has to jump in the game. Already we’re seeing limited same-day offerings from eBay Inc., Google and Amazon.com. On the logistics-provider side, same-day is on the menu from FedEx, UPS and possibly the U.S. Postal Service. (The last has run pilots of its same-day Metro Post service in San Francisco and New York, to less-than-enthusiastic response from e-tailers.)

Typical of any emerging market, the various services are taking varying forms. In the San Francisco Bay Area, Google is deploying a fleet of some 50 Priuses, while eBay is drawing on the assets of Shutl, a U.K.-based service that it acquired last year. Then there’s Amazon, with its dream of drones that can carry packages to the consumer’s doorstep.

The nature of the service can vary as well. For the moment, the most feasible flavor consists of buyers ordering online, then picking up that day from a retail store. In such cases, of course, the responsibility for ensuring same-day receipt rests with the consumer. In the alternative, an order can be delivered to the consumer directly from the store, rather than being run through a distribution center. Retailers might accrue multiple orders, then deliver them together to their individual destinations. That type of service is already being regularly provided in the maintenance and repair sector, and from industrial parts sellers such as W.W. Grainger, Inc.

Amazon continues to open regional distribution centers all over the country. Currently it operates 108 fulfillment centers, with 74.6 million square feet of space. With that kind of a network, you would think that Amazon could deliver within hours on a regular basis in major markets.

One of its newest D.C.s is in Tracy, in California’s Central Valley. That’s less than 90 minutes from San Francisco, but Howard doubts Amazon’s ability to offer near-instant delivery to the Bay Area’s population of some 6 million consumers.

More likely is the possibility of Amazon taking orders placed before, say, 11:30 a.m., and delivering then throughout the day. “That’s the fear of every retailer we talked to,” says Howard. Amazon’s huge volumes could allow it to provide same-day within a defined area at relatively low cost.

“Retail stores have got to be able to match that,” Howard says. “The only way is with local store presence.”

Most stores aren’t designed as warehouses, however, so retailers would need to make certain changes to enable delivery from a sales floor. In addition to expanding or reorganizing the back room, they would have to employ associates as pickers, creating the possibility that shoppers will confuse them with sales clerks. In any case, the setup could never be as cost-efficient as an automated, purpose-built D.C.

The retail store also serves as picking location for e-tailing sites such as eBay and Google, whose employees assume the role of shopper in order to purchase product and drive it to the actual buyer.

Retailers can’t be too happy with that arrangement, as it cuts them out of the loop. “If I’m a retailer,” says Howard, “I prefer to sell and deliver it myself.” Either way, the use of human avatars for online buyers is likely to be too expensive for most providers. That’s why eBay and Google’s same-day option “is very limited so far.”

The more likely role for those online giants is to collaborate with retailers, offering fulfillment and delivery for orders taken by the stores. Yet they’re far from being experts in executing that delicate task. And retailers might well worry that any service failures will reflect poorly on them, not the middleman.

Which leaves the real experts in logistics – UPS, FedEx and their direct competition – to ramp up their same-day options on behalf of retailers and e-tailers alike. In addition, a number of entities specialize in expedited delivery of critical items, but their services are pricey and not easily extended to everyday retail purchases.

Same-day service appears to be a more mature offering in Europe. The postal services of Sweden and Belgium are successfully handling home delivery of groceries. Whether those programs can be duplicated here by USPS is another question entirely.

With its extensive network of vehicles and sorting centers, USPS would seem a natural candidate for same-day delivery. (That, at least, was the rationale behind the Metro Post pilots.) But Howard thinks that a large-scale commitment to same-day could be disruptive to the Postal Service’s existing offering. “There are some fundamental infrastructure things that prevent them from doing one-hour or same-day,” he says.

In the age of the impatient consumer, same-day delivery is an inevitability. But it won’t become economically viable until there’s a shakeout of the players, a clearer definition of their roles and a market that’s much less fragmented. Which is … some day.

Listen to my podcast interview with ARC Advisory Group’s Steve Banker, about the prospects for same-day delivery.

Comment on this article

Displaying results 1 to 3 out of 3
 

Christine

Tuesday, 23-09-14 22:22

It was interesting to see that stores have the option of same day delivery mostly because of the competitiveness factor instead of providing for the customers' wants. I believe that most people do not bother with the same day option due to the costliness of the delivery. It would be more practicable for groceries since they are perishable. However, with commodities such as clothing, customers would rather try it on before buying, which cannot be done over online purchasing. Customers would not be willing to buy clothes or shoes online without a good solid returning/exchange policy. Stores must make returning or exchanging extremely simple and beneficial to the customers in order for them to purchase it. With a return/exchange policy like that, it would be really costly for the stores to provide delivery from and back to the store. Nevertheless, they would need to provide this to maintain good customer service.
Also, to provide same day service, stores must make sure they have all the inventory needed with them. If same day delivery actually were to be big someday, there must be warehouses at many locations globally that is frequently restocked. Once a customer buys a product, that product must be restocked quickly before the next customer buys the same product with a same day delivery. These stores would have to have a really good solid relationship with their suppliers to get products promptly and at reasonable prices. The stores would also have to make a decision on how much of a product they should hold depending on the turn over rate of the inventory.

 

Maria Lewis

Wednesday, 30-04-14 01:17

Although I agree that consumer demand for same day delivery given today’s fast marketplace pace does seem inevitable, I have sincere doubts that it will be cost-effective in the near future. In fact, Mariana’s comment below highlights even more costs and concerns than previously noted in the article. I was interested to read that the drive towards same day delivery has less to do with consumers’ pull demand and more to do with retailers’ and carriers’ attempts to be competitive against one another. Speaking as a consumer that often shops online, even when a retail store is within driving distance, it seems less convenient than ordering something from the comfort of my home. Having products arrive at my doorstep after 2 days (I am a loyal Amazon Prime member) is already changing my shopping habits; getting my orders in the same day would probably drive me away from certain retail stores almost altogether. Therefore, I have several facets of this trend that I would like to keep an eye on:
1) How soon will widespread same day delivery become logistically possible and cost-effective?
2) In what format will same day delivery manifest itself? Will retailers build more DCs, or will retailers collaborate with physical stores or carriers?
3) Which retailer or carrier will win the race to same day delivery, and how long will the resulting competitive edge last?
4) If same day delivery is implemented on a large-scale basis, how will consumers’ shopping habits change, and what effect will it have on physical retail stores?
However, as with most things, only time may tell. As a customer, I can only hope that same day delivery becomes possible sooner rather than later.

 

Mariana Masso

Sunday, 27-04-14 17:28

Delivering on the same day a customer orders sounds ideal; however, retailers have to consider many other issues. Ordering through the internet, and having delivered on the same day or picking up on the same day seems the ideal for the customer; however, how efficient is it for the retailer. Every retailer would have to build large distribution centers, as Amazon, to meet demand on time. With this huge distribution centers, retailer have to keep in mind costs. It not only costs more to set up more warehouses, but also keeping inventory. Retailers will have to forecast demand of online sales accurately in order to have sufficient inventory to meet demand. In my opinion, same day delivery works for commodity products and specialized retailers, for example grocery. Having a same delivery on a department store for example, will increase costs very high. A retailer who wants to change to this model, should know very well their market. If people prefer to see the product and try it on before buying it; this model will not work. It is important for the retailer to know the market, and realize that they will have a competitive advantage over their competitors with this new business model. It is also important to have an elaborate contract with the customer, with clauses explaining any problems if the product is not delivered on time. The retailer should look at its geographical location, and consider any risks, before submitting themselves to this type of business. The contract should emphasizes on any type of natural disaster or any force majeure to secure themselves from losses of not delivering on time.

 
 



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