Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=231340
Story Retrieval Date: 11/26/2014 8:59:30 AM CST
Courtesy of Wal-Mart Stores Inc.
Wal-Mart Stores Inc. is one of the many retailers attempting to dominate the fast-delivery market.
Local and national businesses battle for same-day delivery supremacy
On a recent workday, Teresa Ging, owner of Sugar Bliss Cake Boutique in Chicago’s Loop, prepares a box of cupcakes for delivery. A quick visit to the computer and a click of the mouse later and Ging has set in motion the latest trend in quick delivery.
WeDeliver, an on-demand, crowd-sourced delivery company, will soon pick up Ging’s cupcakes, snap a “before” picture, deliver them to the customer across the Loop, and send her an “after” picture to confirm they arrived in perfect condition. The trip takes 20 minutes while the average cost, which can vary widely, is about $9 per delivery.
“We just started using WeDeliver partly because they can show the customer the cupcakes when they deliver,” Ging said. The price point is also attractive, she said, compared with other delivery options.
WeDeliver’s crowd-sourcing model, which has supplied the company with 298 part-time drivers who bid for jobs much as Uber’s drivers do, has kept its costs low. The company’s growth speaks for itself. Since testing the service for one florist 18 months ago, WeDeliver has expanded to more than 200 Chicago-area businesses today.
“We want to enable every business around to deliver, period,” said Jimmy Odom, owner of the Chicago-based start up. “That’s the big vision. If everyone can offer delivery, you can interact with every local business with ease, and that’s where we’re going.”
What WeDeliver is doing on a small scale is what e-commerce and retail giants like Amazon Inc., Google Inc., Wal-Mart Stores Inc. and eBay Inc. are fighting to do nationwide, with everything from delivery drones to dedicated delivery fleets.
The stakes are high, with e-commerce sales totaling $56.1 billion in the first three months of 2014 alone, up 12 percent from the first quarter of 2013 and 27 percent higher than the same period of 2012, according to the Internet analytics company comScore Inc.
For all of 2014, online sales are projected to rise by as much as 15 percent to upwards of $270 billion from $235.3 billion last year, according to comScore.
The question is whether companies can take advantage of the shift to e-commerce with same-day delivery on a mass scale. Others have tried, such as Kozmo.com and Webvan in the 1990’s. Both fledgling companies went bankrupt in 2001.
EBay, which operates eBay Now in Chicago, Dallas, San Francisco and parts of New York City, denied a story Tuesday that it was going to pull the plug on the same-day delivery service due to low demand.
Despite some growing pains and troubled experiments, analysts say there is an urgency to finding a successful mass model.
“That’s what the consumer wants. Period,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting firm in New York. “The consumer has made this clear. They want same-day.”
Amazon, the leader of the pack, launched its local express delivery option in 2009 in seven major cities and has expanded to 12 since then. Amazon delivers seven days a week in Chicago. The company made a splash in December 2013 when it revealed it was experimenting with delivery drones.
Amazon competes directly with local retailers by selling products from its website. Amazon Prime subscribers pay $5.99 per order for same-day delivery, while non-subscribers shell out $9.98 for the first item and 99 cents for each additional item.
For same-day delivery, customers must order before a deadline to get their products by 9 p.m. Deadlines vary by city from very early morning to early afternoon. Customers who order past the deadline receive their orders the next day. Amazon ships orders via FedEx and UPS, though there is speculation the company has plans to run its own fleet.
In a letter to shareholders released April 10, Amazon CEO Jeff Bezos hinted at a possible U.S. delivery fleet: “We’ve created our own fast, last-mile delivery networks in the UK where commercial carriers couldn’t support our peak volumes. In India and China, where delivery infrastructure isn’t yet mature, you can see Amazon bike couriers delivering packages throughout the major cities. And there is more invention to come.”
“Amazon is making tremendous efforts,” Davidowitz said. “Right now, Amazon can’t [launch same-day delivery] yet, because the logistics requirements are so enormous.”
Amazon currently maintains 96 fulfillment centers and uses roughly 1,300 robot workers, according to Supply Chain Digest, that are made by Kiva Systems, which Amazon acquired for $775 million in 2012. The company plans to expand that number to 10,000 robots by the end of the year.
A successful delivery system would be the next logical step. Amazon did not respond to requests for comment.
Google’s answer to same-day delivery is Google Shopping Express, a service that works with local stores rather than competing with them. Originally offered in the San Francisco Bay area in late March 2013, Google expanded the service last month to Los Angeles and Manhattan.
Customers can sign up for a 6-month free trial, or pay $4.99 per item for individual items. There is no minimum purchase, no mark-ups and no surcharges.
Google uses its own fleet of white delivery vans complete with the Google logo on the side. Customers can choose to order from eight retailers, including Target, Costco, and Walgreens.
Google Shopping Express’ Manhattan launch ground to a halt on opening day May 5 because of overwhelming demand. Though customers were supposed to be able to shop until 4:30 p.m., by noon Google had closed the service.
Google did not respond to requests for comment.
Retail’s 800-pound gorilla, Walmart, began testing its same-day delivery service, Walmart To Go, in 2012 in Northern Virginia, Philadelphia and Minneapolis. Walmart charges a $10 fee per order for an unlimited number of items. Customers place orders by noon local time and can choose various 4-hour delivery windows. For these areas, Walmart uses local couriers to deliver the goods.
Walmart also began testing same-day delivery of grocery and general merchandise in San Francisco and San Jose in 2011 in Walmart’s own specialty trucks. But Walmart says its focus is not solely on same-day delivery, but also free in-store pickup.
“It’s really about convenience and how we can offer more choice,” said Walmart spokesman Ravi Jariwala in an interview.
Some analysts think Walmart has the best chance of success, simply because its 4,200 U.S. stores are within five miles of two-thirds of the population. Goods are delivered directly from the stores, so the company doesn’t have to spend money on extra warehouses or fulfillment centers. “It gives us an advantage to be able to deliver [goods] quickly and cost efficiently,” Jariwala said.
EBay Now delivers a minimum order of $25 in 1 to 2 hours from local retailers in Chicago, Dallas, San Francisco, and parts of New York City. The company began testing the service in 2012. Customers download an app and pay just $5 per order.
But the service has been the subject of reports this week suggesting it was close to shutting down. Online tech publication VentureBeat cited unnamed sources, including eBay Now couriers, who said the service is suffering from low demand. The company denied the reports.
“There are no plans to shut down our same day delivery offering,” eBay said in a statement. “We are focused on supporting eBay Now in its current markets.”
But eBay is no longer planning to expand to 25 cities by the end of 2014, as it had announced last year, according to reports by technology news site GeekWire.
“We aren’t going into 25 markets this year,” Christopher Payne, senior vice president of eBay North America, told GeekWire. “We are focused on our four cities, and will expand when we are ready.”
There are more entrants to the delivery race each day. Target Corp. announced May 21 in a company blog post that it will begin testing same-day delivery in Boston, Minneapolis and Miami in June. The service will run at $10 per order.
Retailers and e-commerce giants know there’s demand for same-day delivery. But can they make it work?
Paula Rosenblum, a retail analyst for Miami-based market research firm Retail Systems Research, says the demand isn’t high enough to sustain same-day delivery on a mass scale.
“As far as I can tell, the demand for same-day delivery is a very niche market,” Rosenblum said. “The only way to make it work is to pass the cost along to the consumer.” And that means it will be too expensive to make it work.
She said same-day delivery only makes sense on rare occasions, such as when someone forgets to buy something they need last minute. But then, she said, anyone can simply drive to a nearby store. Because of this, she sees no real negative impact on local retail businesses.
Davidowitz agrees that local businesses can always effectively compete because they have the advantage of face-to-face relationships with consumers and can provide individualized customer service.
But he also believes that big retailers will figure out how to scale quick delivery of Internet orders, something that consumers want, in a way that’s cost-effective. The only question is who will get there first.
“More and more people are going to be walking around with portable devices, checking prices,” Davidowitz said. “The opportunity is so huge. This is going to change the face of how Americans shop.”