by -- March 29, 2015
The recent uptick in same-day – and in some cases, same-hour delivery services has many wondering what the effects will be on brick and mortar retail. Same-day delivery is not new – think flower or restaurant deliveries. But the practice of offering it as a benefit to customers has reached a more feverish pitch as retailers look to compete with the likes of Amazon and Google to get goods to consumers quickly and painlessly.
Several factors have enabled the fast delivery boom, such as companies having the right technology at their fingertips to integrate with same-day delivery services, smartphone proliferation creating a massive mobile (and cheap) workforce, and a decrease in shipping costs. Commentators also bandy about phrases like “instant gratification” and “on-demand” economy as reasons for the increased need for speed. And venture capital deals are following suit – companies such as Postmates and Instacart are just two of the mobile food and grocery startups that saw a collective $688 million in funding in the third quarter of 2014.
But does this mean the writing is on the wall for physical retail? Probably not. For one, all goods are not ideal candidates for same-day delivery services. In addition, customers are not always willing to interact with the retail environment solely through Wi-Fi.
Instead, the demarcation between goods that are ripe for fast delivery and goods that are not seems to follow the distinction between experience-based shopping and task-based shopping, or shopping for luxury vs. commodity goods. If true, shopping that is pleasurable for many (e.g., for luxury or desired products) should continue to thrive, while shopping that is a chore (e.g., for commodities or everyday needs) may increasingly be outsourced to delivery services. Another point of differentiation is product categories that are not frequently sold online or shipped with UPS or FedEx (e.g., laundry detergent).
Same-day delivery also opens up opportunities for brick and mortar retailers to broaden their product mix. Limited on-site storage space is no longer as big a factor if retailers can hold inventory nearby and ship to customers later that day. This can also be a boon for merchandizing, which has traditionally been more challenging to do on the internet. Retailers can use the additional floor space in their brick and mortar establishment to create innovative ways for customers to interact with products in person, and provide new reasons to draw customers in store.
One area that will be interesting to watch concerns the ownership of the customer data. While it is traditionally the retailer who best understands the customer and what he or she has purchased, same-day delivery services will provide retailers with additional insight into consumer preferences. It remains to be seen whether this will lead to greater collaboration in the consumer data space or to increased competition for who knows the consumer the best.
Another claim that would be interesting to validate over time is whether same-day delivery is truly better for the environment. While same-day delivery suggests less packaging and less shipping because deliveries are more often taking place within a local area, it could also lead to an increase in the negative effects associated with a greater number of deliveries. In fact, the “less packaging, less shipping” argument does not neatly apply to services like Amazon Prime, where products are often shipped from outside the local area.
It remains to be seen whether companies can make same-day delivery profitable while charging prices customers are willing to pay. On top of the delivery price, customers are encouraged to leave a tip for those who deliver their goods, which impacts the final price the customer pays, and likely leads to a lower ceiling for delivery prices. Despite the proliferation in delivery services, building awareness and adoption of these services remains a challenge for the providers, and presumably will continue to act as an additional challenge to their overall profitability.