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.
Katie Evans , Editor, Mobile
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.
However, while shoppers can browse Sport Chalet's site for same-day delivery purchases, they have to use live chat or call a store to buy an item and have it delivered that day. The retailer in the future plans to let shoppers request same-day delivery while checking out online.
Sport Chalet charges between $25 and $35 per delivery. The price varies based on the time of the day.
The retailer says it designed the service as a high-end program meant to appeal to time-pressed shoppers who are typically less price sensitive than other consumers. "Many of our customers are ready to get on a mountain to ski or catch a cruise ship and go snorkeling," says chairman and CEO Craig Levra.
The retailer declined to name the couriers it works with. But Levra says it manages a network of courier companies that it »found in its service areas to pick up products from its stores and deliver them to customers. The couriers do more than just drop a package at a doorstep; they deliver products to a customer's home or office and stay as the consumers tries on the gear to make sure it fits properly. If there are any issues the courier takes the item back to the store so that the shopper doesn't have to make the trip.
But while same-day delivery is gaining traction at Planet Blue and Sport Chalet, at least one retailer that tried same-day shipping over the holidays for less than both the aforementioned retailers charge did not attract a single order. Outdoor apparel and accessories retailer Moosejaw Mountaineering launched an aggressive holiday shipping trial on Dec. 22, offering same-day shipping for shoppers in the Chicago and Denver-Boulder metropolitan areas.
The service, designed as a test to see if speedy delivery resonated with last-minute gift shoppers, was available for $14.99 for orders of $99 or more until 5:00 p.m. local time on Dec. 24. But no shoppers used the service, says Eoin Comerford, Moosejaw president and CEO. The orders would have been fulfilled from Moosejaw stores which are set up to accept online orders and already fulfill as much as 20% of web orders. If consumers had used the service, packages would have been delivered via FedEx Corp.'s SameDay City service.
While Comerford says that "almost immediate gratification" shipping can drive loyalty and appease consumers who want goods fast, retailers have to consider whether they are offering shoppers a good value proposition. "Unless the perceived upcharge is minimal or included in an overall annual fee, I'd say that the take rate is low," he says.
Consumer feedback from another online retailer suggests shoppers are willing to pay around $5 more to get their goods the evening of the same day they ordered them online. U.S. Auto Parts Network Inc. in late May polled 4,000 customers visiting its site to see if they would be interested same-day shipping and also how much they would be willing to shell out for it.
"The $5 price point was generally acceptable," says CEO Shane Evangelist. After the survey, the retailer set up another survey to see how many site visitors would opt to buy on its site with same-day delivery rather than buy the same item from a local store. The results suggested that with the same-day option more consumers would buy more online. The retailer is now offering same-day delivery to consumers who live near the retailer's West Coast distribution center in Los Angeles. The company is using its own employees and trucks for the pilot, Evangelist says.
Some experts and consultants suggest retailers focus on offering next-day delivery rather than same-day delivery. 60% of the respondents in the Booz survey said they make their online purchases after 5 p.m., which is past the typical purchase window to receive same-day delivery. Those polled also indicated that overnight delivery was only 5% less valuable to them than same-day delivery.
"If a shopper is buying online after 5 p.m., that leaves a small window of time for a typical household likely to be willing to accept orders before they have to get their children and themselves to bed," Schmahl says.
While overnight delivery may not seem as alluring as same-day delivery at first glance, Schmahl says online consumers value it. What's more, retailers fulfilling orders for next-day delivery can save money by gathering orders from shoppers within a particular area overnight and deliver them in one go the next day, saving on fuel, capital and labor costs, he says.
"By smartly using their retail footprints as mini-distribution centers, retailers could have the opportunity to nearly deliver the value of same-day shipping to customers for the cost of two-to-three day shipping," he says.
Same-day delivery is still in its infancy. And while it is gaining traction with retailers that offer it as a high-end service and that sell relatively expensive goods, others have struggled to make it work. But if retailers can keep costs down by offering the option in urban areas close to their stores or distribution centers, research suggests some consumers will pay a little more for speedier delivery.
The verdict on just how big that pool of consumers is will become clearer over the next year as more retailers gather conclusive data and gauge the return on their investments. But one thing is certain—the answer won't be delivered by the end of the day.