Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
High-end retailers find early success with same-day delivery, but other merchants are still trying to figure out if it’s worth the effort.
When Amazon.com Inc. makes a move, the rest of the online retailing world takes note.
Amazon.com launched its same-day Local Express delivery service in seven major metropolitan markets in 2009. Since then, it added four more markets and although the retailer has said publicly that is doesn't plan to take the program nationwide, it helped trigger a surge in the number of merchants testing same-day delivery.
"Every retail or transportation client we work with mentions Amazon.com's same-day shipping program in the first paragraph of our conversation," says Andrew Schmahl, principal at consulting firm Booz & Co. That's a sentiment expressed by many consultants, regional couriers and fulfillment executives: Retailers want to offer same-day delivery because Amazon offers it.
But retailers looking to offer same-day delivery are quickly encountering a host of logistical issues. They have to find and build relationships with couriers they haven't worked with before, they have to ensure that the inventory levels reflected in their stores and distribution centers are accurate, and they can't charge too much for the service because, if it is too expensive, most shoppers won't use it. In fact, 88% of respondents in a recent Booz & Co. survey of 1,000 online shoppers said they will not pay more than $10 for same-day delivery.
While it's unclear whether same-day delivery will go mainstream, some high-end merchants, such as apparel chain Planet Blue, which operates stores in Southern California, are finding the challenges worth addressing. Planet Blue, which began working with a local courier service to launch same-day delivery in August, says within a few weeks of launching the service many shoppers were choosing the option—even though the retailer has yet to promote it. The retailer expects more shoppers to use it when the retailer starts its promotional campaign, says Eugene Kang, vice president of e-commerce for Planet Blue.
Retailers' rising interest in same-day delivery is leading more regional couriers that specialize in same-day service to market their services to multichannel merchants, says Rob Johnstone, president of the Customized Logistics & Delivery Association, or CLDA, which in May changed its name from Messenger Courier Association of America to better reflect that the association is more than a group of bike messengers. He says the association's some 450 members are beefing up their services to help retailers deliver items either the same day they are ordered, or the following day.
63.2% of respondents in a 2012 poll conducted by the CLDA of same-day couriers said they deliver retail orders to homes. Still, retail accounts for a very small portion of the couriers' businesses, with 68.9% of those couriers saying residential home deliveries made up between 1% and 10% of their business in 2012.
Regional courier Veterans Distribution, which delivers for 10 retailers including Best Buy Co. Inc., Walgreen Co. and Saks Fifth Avenue, says same-day retail deliveries are growing quickly. "About 20% of our deliveries have our couriers going to a store to pick up and deliver a same-day order," says Brad Factor, the company's vice president. "Just a couple years ago, it was more like 5%."
Veterans relies on a network of 400 independent contractors to make about 1,500 home deliveries per day. Those couriers either pick up items from stores for same-day delivery or receive items in those merchants' warehouses for next-day delivery. The service offers delivery within a 50-mile radius of the Chicagoland area that includes Chicago, Rockford, Ill., and Northwest Indiana. Factor says the retailers his company works with pay Veterans, on average, between $12 and $25 per same-day home delivery. The fees vary based on distance, type of vehicle and the size and weight of each order, he says.
Despite the high costs, some retailers like Planet Blue are seeing signs of success with such services. For Planet Blue, that's partially because the high-end apparel retailer's average order value is roughly $200, according to Internet Retailer's 2013 Second 500 Guide, which means its $19.99 same-day delivery fee is only a 10% premium on the price of a typical order, Kang says. He says while that shipping fee is consistent for the shopper, the retailer's cost ranges between $20 and $30 for each same-day delivery—a fee it negotiated with the courier based on how far the courier has to travel. "Normally, it is more variable with a per-mile fee," Kang says.
Kang says the hired couriers come to the retailer's Los Angeles distribution center at the same time each day to pick up orders. All the couriers wear uniforms.
"It is a premium 'white-glove' service," Kang says. Planet Blue determined that it would offer same-day delivery to addresses within a 50-mile radius of its distribution center, and then updated its site checkout page to only present the same-day option to shipping addresses in that region. So long as an order is placed by 11 a.m. local time, it is fulfilled by 6 p.m.
"By offering this option, we can serve our customers in a new and better way—for that last-minute date or that evening or weekend event that they need the perfect dress for," Kang says. "We also have a loyal celebrity clientele that may want to shop in private and receive premium service." The retailer's celebrity fans include actress Heather Locklear and supermodel Alessandra Ambrosio, he says.
Sports equipment retailer Sport Chalet's same-day delivery service is also gaining traction. The retailer began testing a limited same-day delivery program in January and, after receiving "good feedback from customers," it expanded it in April to shoppers within a three-mile radius of any of the 52 stores it operates across California and the Phoenix, Las Vegas and Salt Lake City metropolitan areas.