While ill at home, Mary P. Anderson needed a prescription. Unable to find a retailer that could deliver it that same day, she dragged herself out bed, headed to the drug store and vowed to do something about it when she returned to work.
As the manager of emerging technologies for the U.S. Postal Service, Anderson had the ability to do just that. Late last fall, USPS joined a crowded field of retailers and logistics experts, all attempting to find the Holy Grail: the right product, price point and customer for same-day delivery.
At this point, most retailers remain in the test phase, targeting major markets like New York City and San Francisco. When the urge strikes, shoppers in those markets can get a hammer from Home Depot via eBay Now; Canon color ink via Amazon Local Express Delivery; or tonight’s dinner from Walmart to Go.
Add in any number of logistics companies — including British export Shutl, due to launch this year — and the ability to receive products the day they are ordered is practically unlimited, at least in major cities. But why now?
“Amazon has pushed the envelope on what’s possible and has gotten pretty successfully to two-day delivery on a lot of items,” says Rob Souza, a partner in the consumer and retail practice of the Boston Consulting Group. “Retailers are trying to figure out how to compete with that and so they are turning to same-day delivery. That said, the economics … are quite challenging.”
The competitive aspect
While it seems that same-day delivery has become the topic of the moment in the retail world, the question remains whether it is customers who are actually driving the conversation.
“You saw a lot of competition during the Christmas season … in big cities around highly promotional seasonal products,” says Al Sambar, retail strategist with consulting firm Kurt Salmon. “Retailers can’t avoid the topic. I’m certain that for the next few years, there will be retailers exploring new delivery options and an increasing number offering same-day delivery.
“From my perspective, there’s a lot of inside-the-industry hype, but it’s not the customer demanding it.”
That perspective is backed up by Shop.org’s eHoliday 2012: Post-Holiday Retailer & Consumer Survey results, which showed that only 4.2 percent of consumers use same-day delivery frequently.
Though it is clearly in its infancy, retailers must begin to explore same-day delivery, says Vicki Cantrell, senior vice president of communities for NRF and executive director of Shop.org, NRF’s e-commerce division. Shop.org’s Think Tank recently released a whitepaper on the topic.
Cantrell suggests retailers consider the competitive aspects, including using same-day delivery to differentiate from competitors. “Leveraging existing store infrastructure to better serve online customers ostensibly makes sense,” she says. “However, we know that delivering successfully on same-day delivery from one’s stores involves a number of critical considerations in turning stores into ‘mini fulfillment centers.’”
USPS joins delivery fray The U.S. Postal Service launched a pilot with 1-800-FLOWERS last fall in San Francisco. Though florists have long provided same-day delivery, the pilot allowed 1-800-FLOWERS to offer the same service for its edible items. USPS’ Metro Post service is taking the lessons learned in the initial test to other retailers and cities. Plans are to be in five additional cities by the end of spring and the top 26 markets by the end of the year. Already, the test is providing valuable information. “One of the big things that we’ve learned is to determine the best cutoff time,” Anderson says. “Some of the other people that have same-day delivery have a very early cutoff time — customers have to know by 7 a.m. or 8 a.m. what they want to order. We’re going out with a 2 p.m. cutoff time … [and] may want to see if we want to push that back later. Cutoff time is an extremely important influence on the success.” Anderson says there have been no delivery failures in the San Francisco test of Metro Post, which is the first USPS product to offer real-time tracking. “We’ve got the model down and we can replicate that throughout” the top 26 metro markets, she says. How much further could it expand? Anderson isn’t sure. “We’ve batted that around,” she says. “Do we want to stay in the city proper or expand out, say 40 miles? How big of a city can we do same-day delivery in? Can we get down to the top 100 cities?”
Target: affluent Millennials A lot of where same-day delivery heads may depend on where affluent Millennials take up residence. The Shop.org consumer survey found that close to one-third of Millennials used same-day delivery. That mirrors a survey by the Boston Consulting Group, which found that affluent Millennials are 56 percent more likely to choose same-day delivery as a matter of course.
“This is why you see a number of the pilots happening in New York and San Francisco,” Souza says. “It’s a combination of the [concentration] of these affluent Millennials and an overall density of population that makes them potentially viable from an economic delivery basis.”
While Millennials may be driving the conversation at this point, Cantrell believes that they shouldn’t be the only focus. “We believe that retailers are thinking beyond the Millennial market,” she says. “The consumer demand for specific types of products — like those with immediate gratification or convenience including groceries, movies and gifting categories — will be where we expect to see continued growth of same-day delivery programs.”
And there are other factors that will influence what same-day delivery becomes, Sambar says. “It isn’t just about cost [and] population density: You need to have good inventory access and be certain that the product is there,” he says. “You can’t do it on every product, but can limit the assortment to ensure that you have a good stockpile. And you have to have a pretty sophisticated physical infrastructure.”
Pay for play
Companies have long proven adept at solving logistics issues, whether partnering with a delivery specialist or using their own bricks-and-mortar stores. But the issue remains: Will customers pay, especially as many have been trained to expect free online shipping? Souza believes there is a segment of shoppers for which the answer is “yes.”
“Today, it’s a niche,” he says. “But the U.S. retail market is a large market. Being a niche of that can still be quite substantial. Even if it won’t become a core business for a given retailer, there is a certain set of customers that will want it and it may be worth offering it to them as a part of the overall proposition to maintain their loyalty.”
Research Souza conducted with Vladmir Lukic, a principal in BCG’s Transportation and Logistics practice, stated definitively that customers have higher priorities when it comes to shipping. The survey of 1,500 U.S. consumers showed that 74 percent would be motivated to shop more online with retailers who offered free delivery, compared with 9 percent who could be persuaded with same-day delivery. In the wide swath of options that separates free from same-day were notions like lower prices, better view of products online, live chat with a salesperson and faster delivery options.
Perhaps there’s some comfort in knowing that it’s available for those times when the mother-in-law’s birthday sneaks up. BCG’s research showed that 51 percent of consumer respondents say that when they use it, it is for last-minute gifts; another 40 percent consider it a good option when time constraints prevent them from getting to the store. “It really is seen as an answer to an emergency situation,” Lukic says.
There also are opportunities to hone in on holidays and other gift-giving occasions like Valentine’s and Mother’s days. “But that is exactly why there is a challenge to deliver this economically,” Lukic says. “You have to build a network that can handle those requests such as high volumes on Valentine’s Day. If a big surge happens five times a year, you’re left with a network that is virtually unused for the vast majority of the time.
“If you don’t ensure the volume on a sustainable basis, and same-day delivery doesn’t become a habit for users, it will be hard to sustain the delivery economics,” he says.
Sambar sees another opportunity in grocery, especially if customers are willing to set up a shopping list and have a recurring delivery. “That really is a different animal from other product categories when it comes to same-day delivery,” he says. “Once you start talking about delivering individual products, those products have to be expensive to recoup the delivery cost, so that’s why delivering an entire grocery list at once is so compelling.”
Same-day grocery delivery has long been available, ranging from small mom-and-pop stores to major chains like Safeway. Walmart to Go launched a test using groceries as the base for its same-day delivery service, though it also includes electronics, office and sporting goods. The concept is currently being tested in Northern Virginia, Minneapolis, Philadelphia and San Jose/San Francisco.
Ultimately, the decision to enter same-day delivery may not be purely economic, either for retailers or carriers. “You certainly have to know the economics and what it costs to do this on an item level,” Lukic says. “But you cannot afford not to play here. Even if the market is small and it generates $500 million, if you allow a local player to get $100 million of that, that small local player now has a scale where it can start attacking some of your other products.
“You have to think of this as a defense play,” he says. “You may make a conscious decision to do that at a loss, or charge more.”
Same-day delivery “is a long way from being an everyday staple,” Sambar believes. “There are certain city dwellers at certain income levels — probably the same people who already use a courier service — who will flock to these types of offerings. Now, it’s about expanding the same service into the digital world.”
Gordmans biggest disruptor is ecommerce. Requires leveraging data differently. #OracleIC156 hours ago
As Gordmans moves to more text/email interaction, Heyman learning about how to get the best response and how to tailor. #OracleIC156 hours ago
Gordmans uses real time A/B testing of emails; reacts to open rates, copy placement to achieve strongest ROI.#OracleIC156 hours ago