When you hear “same-day delivery,” do you think of pizzas, sub sandwiches, and flowers? Yes, me too.
That’s why I’m interested in an evolving story. Walmart is testing same-day delivery in select markets. Walmart isn’t alone in that practice either.
The San Jose Mercury News reports that in their attempts to keep pace with Amazon, Walmart and eBay both announced plans for same-day delivery in selected parts of the San Francisco Bay Area. Amazon and Walmart promise customers that for just a slight delivery charge, their online purchases will be delivered within hours of ordering—in eBay’s case, delivery can be in less than an hour.
Walmart’s beta testing of the same-day delivery service, called “Walmart To Go,” actually began in Northern Virginia and Philadelphia, rolled out to Minneapolis earlier this month, and now includes San Francisco and San Jose, Calif. About 5,000 general merchandise items, including flat-panel TVs, other electronics, and toys are available for same-day shipping. The delivery charge is $10 for an unlimited number of items, with no minimum purchase.
Walmart’s service works this way: Customers place orders until noon and select a four-hour window to receive the delivery that day. Walmart then uses UPS trucks to deliver the merchandise. The process is a little different in San Francisco and San Jose—where Walmart has had an online grocery delivery service under way since 2010. There, shoppers must place their order by 7 a.m. and Walmart uses its own trucks for delivery.
I’m interested in whether some, or all, of the retailers determine same-day delivery service is more complex and costly than they anticipated. Indeed, some analysts caution that same-day delivery is a financial risk and logistical nightmare for companies other than restaurants or florists.
It’s incredibly hard to pull off, says Fiona Dias, chief strategy officer at ShopRunner, a Web service that coordinates shipping for retailers, in the Mercury News article. We haven’t found a way to economically do same-day delivery, she says.
The largest challenge is for the companies to have both sufficient merchandise and stores and warehouses spread throughout a delivery area. Then there’s the delivery cost. Dias believes that if Walmart only charges $10 for deliveries, that amount will cover less than half the cost of one order. eBay offers even cheaper deliveries: the company offers three free deliveries, after which customers are charged $5. However, orders must be at least $25.
The math doesn’t make sense, Dias says. It only makes sense if the truck is full. But if there’s only one package, it just doesn’t make sense, she says.
Another interesting aspect is that Walmart is shipping products from it’s stores rather than warehouses or distribution centers. But as an article that ran on the Wall Street Journal earlier this month notes, that practice is expensive. In fact, it can be three to four times the cost for the retailer to pick items and pack them from a store versus having a really efficient, automated process back in a distribution center, Al Sambar, a retail strategist at consulting firm Kurt Salmon, says in the article.
Actually, even Amazon hasn’t found a way around the high cost. The Mercury News article also reports that Chief Financial Officer Thomas Szkutak said this year that same-day delivery on a broad scale isn’t economically feasible. While Amazon began same-day delivery in 2009, the service has been limited to a handful of cities. However, Amazon has also been aggressively expanding other delivery services and built more warehouses. In fact, Amazon now has a total of 40 warehouses in the U.S. to enable delivering merchandise to customers quicker.
Frankly, I can’t see how same-day delivery is a viable alternative for any of these companies. But as a consumer, it would be nice to have a big screen television or other such merchandise delivered when I want, for $10, rather than the $50-$75 some big-box electronics retailers charge. Maybe that’s the hook: lure customers away from other retailers, and increase sales volume. Even so, it sure seems like a losing proposition.
What do you think? Can same-day delivery prove worthwhile?