Same Day Delivery – Here to Stay or a Passing Fad?
Same day delivery has developed into a legitimate fulfillment model that appears to be gaining traction with consumers. By 2018, the value of merchandise delivered via same-day delivery in 20 U.S. cities is expected to reach over $4 billion. Many big-box retailers have already implemented same-day delivery options. Target currently offers rush delivery (same day) in Boston, Miami and Minneapolis, with expansion to other cities likely coming soon. Macy’s offers same-day delivery to 17 cities including Atlanta, Honolulu, and Chicago. Walmart, one of the first retailers to offer same-day delivery in 2012, now uses same-day delivery for its online grocery shopping service in San Jose, San Francisco and Denver. Keep in mind that 56% of Walmart’s U.S. sales came from food ($161 billion per year) which makes it the largest U.S. grocer. The debate among retailers is the cost vs. the certainty of the order. The average cost for same day delivery is an additional $5 – 10 above normal delivery fees. Orders generally must be placed by 2pm to ensure the delivery arrives the same day. Retail consulting firm McMillan Doolitte states that retailers need to have a minimum 90% order fulfillment rate for same-day delivery to be consistently successful. Anything less renders the same-day delivery service unprofitable. The logistics behind same-day delivery is quite complex and takes streamlined warehouse processes and increased automation. Amazon appears to be taking the lead in the same-day segment by implementing two strategies. First, Amazon offers free same-day delivery to members of its well-known Amazon Prime program in which consumers pay an upfront annual fee. Second, and maybe even better known, is Amazon’s experimentation with drones to lower the delivery cost and deliver to a consumer’s door in 30 minutes or less. What does the future hold for same-day delivery? It really depends on consumers. Will we see them demand lower prices in exchange for waiting a bit longer for their product? Or will the “gotta have it now” mindset win the day? From a supply chain standpoint, we’re paying close attention to retailers that are implementing same-day delivery that still maintain a large footprint of physical stores. We see a real opportunity to leverage existing store locations (that are seeing less and less foot traffic) as local fulfillment centers. For example, Macy’s currently has approximately 800 stores in the US while Amazon has 74 fulfillment centers across the country. If retailers can find a way to leverage these store locations, which are already close to consumers, along with the right partnership with an innovative third party logistics provider (like Performance Team) there is the opportunity to drive improved speed to market and customer satisfaction in the rapidly changing e-commerce space. If consumers are happy, they will continue to use same-day delivery as their preferred option and retailers will see revenues climb. What is your opinion on same-day delivery? Does it have a permanent place in online shopping or is it a passing fad? Leave us your thoughts in the comments section.