Alphabet Inc. today reports that Google’s advertising revenue rose 19.5% in the second quarter.
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Moore says his company pulled the plug because it was in the right place at the wrong time. “The delivery space is in the dumps-the courier companies are awful financial investments, and the new guys like Kozmo and Webvan are getting crushed,” he explains. “We have a great model that avoids the pitfalls but there is a legitimate fear of the category. Our strong ties to the legacy courier industry was a two-sided sword.” Board members did not believe they could finance the company through the public market, Moore says. The company took in more than $1 million in founder and was reportedly working with several large retailers.
However, Roger MacDonell, founder and CEO of Redwood City, Calif.-based DeliverEtoday, which has conducted tests with at least one major retailer, contends that both DNet’s and GetToday’s point-to-point delivery models were flawed. DeliverEtoday plans to build a series of local hub-and-spoke sorting centers, similar to FedEx or UPS, and then deliver packages with its own fleet of brightly painted vans in order to maintain quality control. The sorting centers enable drivers to pack their routes, increasing delivery density.
As a result, the company claims that with sufficient volume it makes money while charging less than $10 per delivery. “Our model takes into account both the density and quality issue,” explains MacDonell. “We’re a supershuttle not a taxi cab.” The company is currently seeking additional funding.
Pickers vs. shoppers
The real problem same-day delivery companies face is lack of demand by big retailers, says former GetToday backer Mark Saul, a partner at Foundation Capital. “Retailers don’t see it as a priority,” he says. “Their competition’s not doing it and they have 18 other urgent issues.” He cites DeliverEtoday as example. “They’ve been in business nine months, and have zero customers.” Point of fact: They have a mom-and-pop bookstore in Menlo Park.
One reason retailers have been slow to adopt same-day delivery is the lack of in-store infrastructure to support rapid delivery. To offer same-day delivery, retailers require a real-time inventory system that is integrated with their web site. Most retailers rely on a batch inventory system. They also must be set up to pick and pack customer’s orders at a local store. Few retailers meet these criteria. “There’s no doubt it would give retailers a powerful new service option if they had the back office infrastructure and culture to support it. Unfortunately those are big ifs,” says the president of the online division of a national luxury goods retailer that worked with DNet.
While distributing consumer goods out of local stores has a certain logical appeal, not everyone is convinced it offers a workable solution for retailers.
The problem, says Andrew Krainin, co-founder and senior vice president of marketing at Sameday.com which helps retailers and b2b companies improve their distribution networks to support rapid deliveries, is that in-store inventories are difficult to pin down on a real-time basis. Inventory is sitting in customer’s shopping carts. Items get stolen and sales are recorded with the wrong SKUs. “Even if they have an integrated point-of-sale system, it’s not going to be 99% accurate,” he says. “Our belief is that retailers want a high degree of certainty and control over their orders.”
In addition, he says the in-store labor required for checking shelves and staffing a pick-and-pack operation is an expensive way to distribute goods. And creates conflicts with in-store processes-the higher the volume, the greater the disruption. Pickers would end up competing with shoppers.
“If you’re a mom-and-pop, it’s probably OK, but it’s not a viable solution for major national chains who want to maintain their brand at a high service level,” Krainin says. “If they start seeing significant volume, it will create conflict with their in-store processes.”
Barnes & Noble plans to take advantage of its inventory, buy in a different way. In a test of same-day service launched last May in New York, books ordered from bn.com by 11 a.m. are delivered by 7 p.m. at standard ground rates. Fulfillment is handled out of the company’s 800,000-title distribution center in Dayton, N.J., through City Sprint, a local courier service.
According to Vice President Gus Carlson, the giant bookseller hopes to gain valuable experience while gauging consumer demand. Though deliveries are reportedly strong and growing, he is quick to point out that Manhattan is a unique, high-density market where everyone delivers.
“We’re still not sure if the technology is transferable to our entire market,” Carlson says. But then that’s what they said about online book selling. Amazon has got $60 million riding on Kozmo, and they’ve got history on their side.
If we’ve learned anything from the century that brought us FedEx, Moore’s Law and the Internet, it’s that someone always finds a way to do things faster and cheaper. But, as Smith’s and now Park’s examples demonstrate, don’t expect it to happen overnight.
In theory, a good idea, but …
Susan Neal, vice president of business development at Gymboree, understands the problems of in-store distribution first hand. While some advocate that retailers ship merchandise they have on hand to web shoppers, it’s just not that easy.
Last Christmas, the 550-store children’s apparel retailer tested same-day delivery with DeliverEtoday at a Bay area store. Online customers in selected ZIP codes were offered free same-day delivery. Gymboree’s motivation for offering the service? “It’s consistent with our brand,” explains Neal. “Moms don’t have a lot of time. We want to make their lives easier.”