Retailers testing same-day delivery service may soon find that giving customers what they want as fast as they want it is trickier — and costlier — than they bargained for.
In their scramble to keep pace with online giant Amazon.com Inc., Wal-Mart and eBay this month announced plans for same-day delivery in selected parts of the nation. Some analysts caution that same-day delivery — the latest holy grail for retailers — is a financial risk and logistical nightmare to almost anyone but the pizza parlor and the local florist.
“It’s incredibly hard to pull off, said Fiona Dias, chief strategy officer at ShopRunner, a Web service that coordinates shipping for retailers. “We haven’t found a way to economically do same-day delivery.”
But a lineage of failed delivery services like Web-van, an online grocery business that became a legendary dot-com failure, hasn’t deterred retailers from striving to satisfy the ever-higher demands of consumers who want instant gratification.
“That’s the Internet,” said Stephen Baker, vice president of industry analysis at NPD Group. “We already get instant delivery of our music, our movies.”
Some purchases are still worth a stroll through the mall — luxury jeweler Tiffany &Co. isn’t likely to send engagement rings same-day delivery, nor would customers want to give up the glitzy, Champagne-filled shopping experience. But the convenience of quick home delivery appeals to shoppers like Lyshone Griffin of Oakland, Calif. Standing outside that city’s Wal-Mart last week, she said she would happily pay the extra money for same-day delivery of large furniture, such as a bed, that she needed urgently and couldn’t pick up from a store herself.
Amazon and Wal-Mart promise customers that for just a few dollars extra their online purchases will be dropped at their front door within hours of ordering — or in eBay’s case, in less than an hour. After all, there’s nothing quite as exciting as a knock at the door from UPS, holding the new flat-screen TV you ordered even before the charge appears on your credit card.
But analysts note that packages will reach customers within a day only if companies have enough merchandise and enough stores and warehouses spread throughout a delivery area. The other snare that often trips up retailers, said Dias, is that they can’t control the delivery. In some cases, the delivery guy may be a college student trying to earn a few extra bucks working as a contract driver for eBay.
“It’s not a same-day guarantee; it’s a same-day maybe,” Dias said.
EBay spokeswoman Lina Shustarovich said the company’s goal is to deliver in an hour, “but we can’t control for unusual circumstances.” EBay does not offer concessions for late deliveries.
Wal-Mart will use its own trucks and drivers in the San Francisco Bay Area, where the mega-retailer has had an online grocery delivery service under way since 2010, and will work with UPS in the other test cities.
Then there’s the cost, which may discourage both retailers and customers. Wal-Mart charges $10 for deliveries of any size, which Dias expects will cover less than half the cost of one order. eBay offers three free deliveries, after which customers are charged $5. Orders must be at least $25.
“The math doesn’t make sense,” Dias said. “It only makes sense if the truck is full. It doesn’t make sense if there’s only one package.”
But for a few Wal-Mart customers in Oakland, Calif., the delivery fee is too expensive; they’re watching every dollar. Unloading her bags from a cart outside the store, Maria Rivera of Alameda, Calif., said same-day delivery was “not for me.” She doesn’t have a computer at home to shop online, and even if she could borrow a friend’s, the extra $10 was too much.
Spokeswoman Ashley Hardie said the test would help Wal-Mart gauge where same-day delivery might work, and “learn what’s better for our customers and better for our business.”
Even Amazon hasn’t found a way around the high cost. Chief Financial Officer Thomas Szkutak said this year that same-day delivery on a broad scale is not economically feasible. The company began same-day delivery in 2009, but the service has been limited to a handful of cities. But Amazon also has been aggressively expanding other delivery services and building more warehouses — it now has a total of 40 in the U.S. to get merchandise to customers more quickly.
Even Amazon’s efforts to speed up deliveries likely won’t sway Sunnyvale, Calif., resident Andrey Abutin, who canceled his Amazon account after the company began collecting sales tax in September. And he questions whether Amazon’s same-day delivery — not yet available in his region — is even worth it. The $8.99 cost of same-day delivery, plus about a $1 per-item fee, doesn’t add up for him.
“You’re looking at way too much overhead for anything costing less than $150,” he said.
Abutin prefers Google Shopping, which he says allows him to compare prices across dozens of websites without leaving his computer chair.
But Amazon has raised the bar on retail delivery and competitors are running to catch up. “Everybody is assessing this — whether or not they want to pursue it, and whether or not they can,” said Bruce Cohen, retailer and consumer strategist with Kurt Salmon in San Francisco. “For businesses, it’s innovate or step aside.”
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