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Same Day Shipping: Holiday Beta Testing and an Unclear Future

Jan. 9, 2013
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Same-day shipping became the latest weapon in the battle of major online retailers this past holiday season, with eBay and Walmart becoming the most recent e-commerce companies to step into the instant consumer gratification game.

Where once free and overnight shipping were the biggest lures for internet shoppers, a whole new infrastructure is attempting to rise, upping the ante and potentially changing the future of internet retail. The implications could prove huge to independent online and physical storefronts as well.

Ever-increasing competition

In 2009, Amazon began providing goods at your doorstep just hours after placing an order in selected markets. Currently available in 10 cities nationwide, the service, known as Local Express Delivery, comes with limitations based on location and time of order, with a flat delivery rate of $8.99, plus 99 cents per item.

In what seems to be a direct response, eBay jumped into the quick delivery game last year, beta-testing its own same-day service, eBay Now, in New York and San Francisco. Unlike Amazon, eBay Now does not rely on major couriers, but rather employs its own fleet of delivery people, known on the site as “valets,” who are independent contractors using their own vehicles.

Not one to be outdone, Walmart, one of the nation’s largest retailers, also entered the race last October, using a combination of UPS and its own couriers to deliver goods within hours to five major U.S. markets.

Delivery rates vary for each company but all are currently keeping prices fairly low. Walmart is charging $10 per order and eBay Now is offering beta users their deliveries for just $5, which are promised to arrive in about an hour after order placement.

The push for immediate delivery

Consumers have long had the option of choosing overnight delivery on most major online retail sites, so some are now asking why same-day delivery is seeing such a surge with industry giants.

According to the New York Times, the answer may be that fear is pushing retailers to follow Amazon’s lead or get left behind. The Times reports that Amazon has been making moves to make its current same-day service accessible to more markets around the country by building more warehouses close to major hubs like San Francisco and New Jersey – a move that may be predicated on the company now having to factor in sales tax on its orders.

Whatever the impetus for Amazon implementing a new delivery standard, its effects seem to be clearly influencing other retailers to step up their games, regardless of an apparent lack of consumer demand for it.

Forbes contributor Laura Heller points out that competition between retailers has driven same-day service to be necessary among said retailers, even if many consumers do not see it as crucial to their daily lives right now.

Another factor, according to Heller, is the ease of ordering that has come with increased smartphone and tablet technology, turning what was once logistically unfeasible into a workable reality.

Ordering via smartphone is allowing a company like eBay to tap into new avenues of online shopping, such as delivering cold medicine to those stuck at home with the flu in mere minutes, or providing a last minute gift for someone to bring to an impending birthday party. These are items shoppers would not normally look for online, as their need is too urgent to wait.

Stiffening competition for small business

The example of the procrastinating partygoer leads into yet another motive for getting consumers their goods nearly instantly: to compete with physical storefronts that offer instant tactile indulgence.

As Ben T. Smith, IV, CEO of Wanderful Media, a local discovery shopping website, points out, immediacy has been one of the main advantages brick-and-mortar merchants have had in stemming the tide against aggressive online mega-stores. “Historically online retailers have missed on the instant gratification piece that physical stores deliver. With same day delivery, online retailers offer something closer to the experience shoppers have when walking out of a store with physical merchandise,” says Smith.

For Smith, same day shipping is all about reinventing how consumers view shopping and providing the consumer with the best, most integrating experience possible. “The thinking behind this same day delivery strategy is to provide the best of both worlds for online shoppers ­ lower prices and bigger selection, plus receiving your purchase the same day, ­ getting that instant gratification. We¹ll be seeing same-day delivery popping up from retail stores in 2013,” states Smith.

Tapping into the desire for immediacy by decreasing a customer’s waiting time to mere hours rather than days could help sites like Amazon and eBay bridge the gratification gap – a possibility that has potential to be disastrous for smaller businesses.

According to Jeanne Wind, Vice President of merchandising for QCI Direct, a national catalog company that mails 35 million catalogs a year, “same day shipping is hard to achieve unless you have warehouses all over the U.S. It is very costly, and most consumers are not willing to pay the premium to have it shipped same day. I think you will only see the largest retailers moving to that and the small businesses will be hurt if they can’t offer that competitive service.”

While eBay’s service sources items directly from actual storefronts, the majority of its partners are larger outfits like Toys ‘R Us and Payless, whose inventory can be managed and tracked a bit more precisely. Smaller retailers who do not contract with any of these sites may be forced to come up with their own ways to make shopping more convenient for customers, or otherwise find new tactics to gain an edge.

Contributing to Forbes, UPS employee Jessica Stillman makes the case that a push for “real” local goods that can be tracked to their makers may help save some sellers. With consumers’ demand for locally sourced food has come a desire to know that their inedible goods are also unique items of quality, made by people they can get to know, thereby showing that care was put into it.

While bigger outfits may always have the advantage when it comes to speedy shipping, Stillman says that smaller shops have the benefit of offering a human touch, whether it comes in the form of in-store advice or handwritten notes that ship alongside goods – things that mega-stores can never provide.

Risks versus benefits for big box retailers

With shipping fees that are not much more than standard rates for overnight or two-day shipping, it’s not hard to see how the promise of couch shopping will be enticing for many consumers. After all, when a service like eBay Now can get your products to your door (or office, park or other specified location) in about an hour flat, the main deterrent of waiting to have the item in your hands is pretty much eliminated.

Some in the industry, however, are doubtful that even companies as big as eBay and Walmart can sustain rates low enough to appeal to a wide market while still garnering a profit.

As demonstrated by the quick rise and fall of same-day delivery site in 2001, the risks of offering such a complicated and expensive service are great.  On an eCommerceBytes forum, Fiona Dias, Chief Strategy Officer for ShopRunner, explained that offering same-day delivery tends to make the delivery process less streamlined, limiting delivery companies’ ability to put together enough packages to make single runs profitable.

Dias goes on to say that even in a few years, she believes that same day shipping will not be a primary method of ferrying Internet goods to shoppers.

And then there is the matter of the markets that will likely never be reached by the service: those not near enough a major metropolitan shipping area and facility.

Still, some experts maintain that same-day delivery may have a lasting impact on the retail landscape. In a [email protected] Today article, Wharton School of Business marketing professor David R. Bell said he believes these bigger companies have the knowledge and resources to do what Kozmo could not: increase density in deliveries to reduce infrastructure costs.

Bell also noted that, as these companies will be able to either access warehouses in more locations or pick up items directly from nearby retailers, the cost of maintaining storage space will be either reduced or already built in to operating costs.

As of now, none of these three companies have reported whether or not the experiment has proven profitable yet, although Amazon founder Jeff Bezos was recently quoted as saying he was unsure if the service would ever be “a huge part of the business.”

In reference to eBay Now, suggests that there is no way the company can be making a profit under its current $5 delivery structure, but that this initial low-cost lure might be an investment in growing a customer base. Future revenue can then be generated by increasing delivery costs, as well as by partnering with retailers and charging finder’s fees.

If that investment proves fruitful, and loyal followings are established for same-day services, we can likely expect to see more of them in the next year.

Original image from Shutterstock.