Stores Testing Same-Day Delivery

Retailers from Wal-Mart to Nordstrom, as well as e-commerce sites Amazon, eBay, Google and Postmates, are in various stages of trying out the service.

Same-day delivery is in the nascent stages in the U.S., but physical retailers from Wal-Mart to Nordstrom, as well as e-commerce sites Amazon, eBay, Google and Postmates, are in various stages of testing the service.

This story first appeared in the May 21, 2013 issue of WWD.  Subscribe Today.

The reason for same-day delivery is clear: immediate gratification. It’s the leg up brick-and-mortar retailers have over e-commerce. “This highlights one of their key competitive edges,” said Matthew Nemer, a retail analyst at Wells Fargo. While Amazon’s delivery model utilizes its distribution centers, Nemer said, “The model of products being delivered from the store to the home is the better model. The only way to make the same-day delivery model work is if there’s a store. If you pick up from the retail store, it’s always going to be closer to home. This will be an incremental way to utilize the store and a tool for retailers to fight Amazon.”

Same-day delivery has relatively low consumer adoption rates — 7 percent, according to Shop.org. Nemer, who wrote a research note about same-day delivery, “Battle of the Couriers,” test-drove the various services.

Nemer sampled Wal-Mart To Go and Google Shopping Express, which are still in the beta phase. EBay Now is operating only in San Francisco, San Jose and New York; Instacart is available in the Bay Area, and Postmates is serving San Francisco and Seattle. Start-up Shutl operates in 70 towns in the U.K. and is planning to launch in 19 U.S. cities by the end of 2013. “As Amazon expands its fulfillment network, we expect it to continue to refine and expand its Local Express Delivery program, which is available in 10 cities, though not in the Bay Area,” Nemer said.

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Despite the lack of interest from consumers, Nemer believes new models could break down resistance. “Same-day shipping provides offer a good experience, and further innovation will likely drive adoption for customers with above-average income in medium-sized cities and urban markets,” said Nemer. “It’s not a panacea for traditional retail, but it does bridge the competitive gap with Amazon Prime and could drive higher average order values.”

For the economics of same-day delivery to work, there needs to be a third-party player who aggregates it. For example, a third-party courier could be aggregating orders from Wal-Mart, Macy’s and Nordstrom.

“I don’t think the single retail model is going to be successful,” Nemer said. “[Third party] is an expensive model, but that will change as adoption rates go up. Shutl works because it’s using an existing courier network so it doesn’t have to hire its own people. Also, the couriers are doing multiple things at the same time, delivering something from Wal-Mart and picking something up to be returned to Bed Bath & Beyond. Shutl will be listed in the retailer’s checkout along with other shipping options.”

In terms of how much consumers are willing to pay for convenience, Shutl found that 5 percent of the order value is the sweet spot.