E-retailers kick the tires of same-day delivery, hoping shoppers will come along for the ride.
Paul Demery , Chief Technology Editor
For a few days before Christmas, the United Kingdom's Argos retail chain tried something bold: It offered same-day delivery of online orders—for free.
"We saw some movement" in the number of customers completing orders, says Brian McCarthy, director of home delivery for Argos, without providing details.
It was a costly offer, but an effective way to expand the retailer's base of loyal customers, he adds. "The whole market of competition is changing," he says. "Loyalty to brand is less; loyalty to price is stronger. It's the same with same-day delivery services. The value to the retailer is the frequency of customers shopping."
Argos, a subsidiary of Home Retail Group, operates more than 730 general merchandise stores throughout the United Kingdom and is offering same-day delivery to about half of its customers across more than 50 U.K. towns. It provides the service through London-based Shutl, a company that dispatches online orders to local courier services based on such factors as availability, location and the courier's past performance.
Shutl—which promises to deliver within 90 minutes of receiving an online order or within a scheduled 60-minute window throughout the day—is making inroads in the United States and Canada. Last month it began operating in New York, San Francisco and Chicago, and it plans to enter 17 more North American cities this year.
Argos' launch of same-day delivery is an example of what's suddenly a hot trend in online retail—offering shoppers the option of receiving goods the same day, letting them get the goods as quickly as they could by going to a store. While evidence is scant that many consumers are demanding such fast service, retailers and delivery companies are working to bring the same-day delivery cost low enough to spark interest.
Among the recent entrants in the same-day delivery race is Metro Post, which the U.S. Postal Service launched last November as a test in San Francisco with 1-800-Flowers.com Inc. and other retailers. Since October, Wal-Mart Stores Inc. has offered Walmart to Go, using its own trucks to deliver online orders the day they're placed by picking up goods from Wal-Mart stores in five metro areas—Northern Virginia, Philadelphia, Minneapolis, San Jose/San Francisco and Denver. Also in October, eBay Inc. rolled out eBay Now, a mobile app for managing local courier pick-up and delivery services that retailers such as Target Corp., Macy's Inc. and Best Buy Co. Inc. are testing in New York and San Francisco. And Amazon.com Inc., the world's largest retailer by web sales, has since late 2009 offered its own same-day delivery service, now in 10 of the largest U.S. markets.
Many retail chains are at least looking at same-day delivery, if not already making plans for it, figuring they need to explore any service that will help them compete on the web where they are seeing their strongest growth, Al Sambar, a logistics and retail strategist at consulting firm Kurt Salmon, says. "For most of our retailer clients, their largest growth channel is digital, so they're expanding merchandise assortments online and trying to deliver to their online customers in as many ways as they can," he says.
Same-day delivery is far from a proven strategy for winning customers or boosting profits, industry experts say. Retailers that have several stores or fulfillment centers in a major market, one of the requirements for offering same-day delivery of online orders, can offer expedited one- or two-day shipping for far less cost than same-day delivery, or in-store pickup for no cost to the shopper. "It raises the question: Will customers pay a premium for same-day delivery?" Sambar says.
In some cases, the answer has been a flat-out no, he says. One client retailer that he wasn't free to name got few takers when it offered same-day deliveries in New York and San Francisco. "Few customers were willing to use the service except when the retailer promoted it at a discounted fee or for free," he says. "Customers weren't willing to pay a premium price if they could just pick up their product in a store after ordering it online." Fees for same-day delivery typically average close to $10, and they can vary based on the size of an order and the delivery distance, experts say.
In another example, retail chain Moosejaw Mountaineering introduced on Dec. 22 same-day delivery in the Chicago and Denver-Boulder markets for orders placed up until 5 p.m. on Christmas Eve. The fee was $14.99. "We had a couple of people call to see if it was for real, but no one ended up using the service," says Eoin Comerford, Moosejaw president and CEO. He says that may be because consumers weren't used to the service and may not have trusted that their gifts would arrive before Christmas. Nor did the retailer promote it heavily, he says.
Nonetheless, some are willing to bet on the same-day concept. UPS Inc., the most commonly used carrier by retailers among the Internet Retailer Top 1000 for standard ground or one- or two-day shipping, is among a team of investors in Shutl that includes the Europe-based delivery services company GeoPost and venture capital firms e.ventures, Hummingbird Ventures and Notion Capital. To date, the backers have invested more than $5 million in Shutl since last October. Shutl says it's using the funds to develop its marketing in the United States and Canada.
Moreover, the new crop of same-day services all promise to go beyond what Amazon offers by delivering from retail stores online orders placed by 2 p.m. or even into the later afternoon or evening hours. In comparison, Amazon restricts same-day delivery to orders placed online between 7 a.m. and noon, depending on the city. Walmart.com generally accepts orders for same-day delivery until noon, and lets shoppers choose a 4-hour delivery window running to late in the evening.
For 1-800-Flowers.com, which has offered same-day delivery for decades through its network of florists, working with the new Metro Post service from the USPS provides an opportunity to extend immediate deliveries to products besides flowers, the retailer says. "With the Postal Service's Metro Post service, we're very excited to be able to expand our same-day gift offerings to include some of our great gourmet food brands," Chris McCann, the retailer's president, says.
A 1-800-Flowers spokeswoman says it's too early to comment more about Metro Post, such as how consumers are responding to it. The Postal Service is working with other retailers in the Metro Post test in San Francisco, where service extends to the metropolitan area's 26 ZIP codes, but it hasn't named them. "We're working with major retailers and e-tailers," says Gary Reblin, vice president of new products and innovation for the USPS, declining to be more specific.
Retailers that do participate in these services must be able to quickly provide information about online orders to the delivery companies they're working with. Argos' participation in Shutl was made easier, says Shutl CEO and founder Tom Allason, by the fact that the retailer already offered shoppers the option of in-store pickup of online orders—a service becoming quite common among U.S retailers as well, including 51 retailers among the Internet Retailer Top 500 and 38 among the Second 500.
Retailers that offer in-store pickup already can show real-time updates of inventory and how to locate and move merchandise within stores for pickup by a customer, Allason says. Participating in a same-day delivery service requires the retailer to extend its inventory updates beyond its own network to the couriers who will make the deliveries.
Unlike the courier services offered by Shutl and eBay Now, the Postal Service's Metro Post uses its own trucks and drivers to pick up orders from a retailer's location and deliver them to customers. This allows Metro Post to accommodate web-only retailers such as 1-800-Flowers, which require delivery vans—as opposed to deliveries via cars, bikes or public transportation typically used by couriers—that can pick up a larger number of orders from a warehouse and deliver to several customers. The Metro Post service lets retailers take online orders until 2 p.m., then dispatches a delivery van to pick up orders (with packages generally up to 25 pounds each) from the retailer's location to make deliveries until 8 p.m. the same day. For now, it has four delivery vans in service in San Francisco. The vans use Postal Service software to devise the most efficient routes for each driver.
The Postal Service is determined to help merchants keep the price to consumers close to standard ground shipping, which for many orders is under $10, and will help retailers promote the service, Reblin says. "We're willing to work with any retailer to do some advertising," he says. By comparison, UPS says its average revenue per package shipped in 2012 was just under $8.
EBay Now operates as a shopping valet or personal shopper service, through which a consumer uses an eBay Now mobile app to request a shopping assistant to find a particular product at a retailer and deliver it to the shopper's location. The app's built-in GPS and mapping technology automatically finds the nearest available shopping assistant, allows a shopper track the assistant's location, and lets the shopper and shopping assistant to communicate if necessary about the desired product and schedule delivery.
To show shoppers and shopping valets what's available in stores, eBay Now uses data from eBay's Milo system, which shows mobile shoppers the products available from the nearby bricks-and-mortar locations of participating retailers. For now, eBay is setting a standard delivery fee of $5 and requiring a minimum order of $25, with no extra charge for returns, the spokeswoman says. EBay is also considering a new system that would let retailers set the price, such as in their own promotions, she adds.
As with other same-day services, few participating retailers are commenting. "We're excited to be a part of it, but we have nothing to share on the eBay Now pilot at this time," a spokesman for Target Corp. says. Macy's Inc. and others listed as eBay Now clients also declined to comment.
In the United Kingdom, where Argos has been using Shutl since late 2010, the retailer is still evaluating the best way to offer same-day delivery. It's testing how much to charge for the service and whether to offer it for free or for a discounted rate depending on a customer's order value. In addition to testing same-day delivery for free, Argos is also testing offers of same-day delivery for a fee of 5 British pounds (approximately $7.46) when customers meet minimum order thresholds of 50, 75 and 100 pounds ($74.64, $111.96 and $149.28).
"It is difficult to ascertain exactly the impact Shutl has had on customer conversion," McCarthy says. "The Shutl option is shown to the customer at the very end of their shopping journey and, theoretically, we have already converted the customer. However, from the repeat occurrences and the positive feedback we have received from users, it is both a fast and convenient way of getting goods to the customer, and offers yet another route that gives customers added choice and convenience."
Shutl's cost to retailers varies based on such factors as the size of the ordered product and the distance between the pickup store and the customer's address. Retailers are free to set the price they charge customers. Shutl recommends that retailers charge customers less than 5% of the total order value to get the best response. "When the Shutl price to consumers is less than 5% of basket value, about 40% to 45% of shoppers choose Shutl," Allason says.
But that formula won't necessarily cover the retailer's cost. Retailers must find the right balance of delivery fee and profit margin—and learn from the mistakes of companies like Urban Fetch and Kozmo.com that offered same-day delivery in the 1990s and failed, Sambar of Kurt Salmon says. Their biggest problem, he adds, was offering same-day delivery on too many orders, including those that didn't cover the cost of delivery. "You have to be careful if you're offering same-day delivery on things like paper clips," he says.
But for retailers that make same-day delivery work, they'll be ready if it proves to be a way to win the hearts and wallets of shoppers before they drive, or click, to another merchant.
Speedy delivery (A sampling of same-day delivery services for online orders)
U.S. Postal Service Metro Post: Customers in San Francisco can order online until 2 p.m. and receive deliveries between 4 p.m. and 8 p.m. as part of this pilot project. Fee: Close to standard ground shipping, which for many orders is $10 or less.
Shutl: Scheduled to launch in Q1 in New York City, Chicago and San Francisco. Delivery is available 24/7, or when stores or warehouses are open. Fee: Set by retailers; Shutl recommends less than 5% of order value.
eBay Now: Consumers in the test markets of New York and San Francisco can have a personal shopper pick up the items ordered from a retailer's store and have them delivered between 9 a.m. and 6 p.m. on most days, with extended hours for holidays. Fee: $5 with minimum order of $25.
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 a.m. to noon in 10 major cities—Baltimore, Boston, Chicago, Indianapolis, Las Vegas, New York, Philadelphia, Phoenix, Seattle and Washington—for delivery as late as 8 p.m. Fee: $8.99 per order or $3.99 on eligible items for members of Amazon Prime, a program that also offers two-day shipping for an annual fee of $79.