The Exchange

Same-Day Delivery: Do Consumers Want It All and Want It Now?

Next-day delivery is so 2011.

Who wants to wait five to seven business days to get that baby car seat or French press coffeemaker? Even two days can test one’s patience. You want it today.

Retailers are beginning to accommodate consumers’ must-have-now sensibilities as same-day shipping competition heats up among big and small outfits. Walmart (WMT), eBay (EBAY) and even Google (GOOG) are experimenting with the service.

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Same-day delivery might be a saving grace for the urgent one-off purchase – last-minute Christmas gift, for instance – but in broader terms, will consumers pay extra for the convenience? A survey conducted by Boston Consulting Group last month suggests they won’t. BCG found that only 9% of the 1,500 U.S. consumers surveyed “cited same-day delivery as a top factor that would improve their online shopping experience, while 74% cited free delivery and 50% cited lower prices.”

Testing the same-day delivery waters

Late last month Google (GOOG) announced the rollout of its same-day delivery service, Google Shopping Express. For now the service is in pilot phase in the San Francisco Bay area and is letting a limited number of consumers apply to test it. The stores available to shop from so far include Target (TGT), Staples (SPLS), Toys R Us, Blue Bottle Coffee and American Eagle Outfitters (AEO). Users browse for what they want in one spot, select a delivery window and get their order that same day. In a blog post about the service, product management director Tom Fallows said the company is still working out the “long-term pricing plan,” and the pilot will eventually expand beyond San Francisco. (Participating retailers pay Google a commission for the service.)

Last year eBay introduced eBay Now, a mobile app that lets consumers order online and get same-day delivery. The service also initially served the San Francisco area but now works with “hundreds of local retailers” in San Francisco, San Jose and parts of New York City, and delivers “usually in about an hour,” according to the company’s site.

Amazon.com (AMZN) has been offering same-day delivery – its Local Express Delivery Option – since 2009. It's currently available in 10 markets; customers must order by a certain time to get their purchase delivered that day. The retailer has been pursuing more local fulfillment centers, no doubt trying to get orders delivered faster.

And big-box behemoth Walmart (WMT) launched a same-day delivery test last November. The service is offered in northern Virginia, Philadelphia, Minneapolis, Denver and the San Jose-San Francisco-area, with no plans yet to expand to other markets, says Ravi Jariwala, a Walmart spokesman.

Start-ups are getting in the game, too. UK-based delivery service Shutl is launching in New York, Chicago and San Francisco and in another 17 cities in the U.S. this year. Like Google, Shutl isn’t a retailer itself; it plans to launch with three national retail partners in the pilot cities, says a spokeswoman. Deliveries, which are available 24 hours a day, typically cost less than $10 per order and are sometimes free.

Postmates, which calls itself a “same day urban logistics and delivery platform,” just launched service in Seattle after starting in San Francisco last year. Its mobile app, called Get It Now, lets users purchase items from stores and restaurants. Couriers make deliveries, which start at $6.99, using their own bikes, cars, trucks and scooters.

Will consumers bite?

Consumers of a certain age might be reminded of dot-com era outfits such as UrbanFetch, Webvan and Kozmo, which offered to deliver – usually by bike messenger -- everything from a DVD to a pint of Ben & Jerry’s at any time of day for free. They didn’t last.

“There’s the expectation that there’s going to be demand for this in future. Customers like [delivery] when it’s free," says Al Sambar, retail strategist at Kurt Salmon, a management consulting firm. "But when you ask them to take on burden of cost, they’re generally not willing to pay for it.”

One demographic might be willing to pay a premium for day-of delivery, BCG says: “Affluent millennials,” or urban-dwelling consumers aged 18 to 34 with a household income over $150,000. This group constitutes just 2% of the market, but their online spending is about twice that of the average U.S. consumer, BCG says. The young and affluent are willing to pay up to $10 for same-day delivery, while other consumers are likely to pay up to $6, less than the fee charged by most retailers now, says BCG.

Leveraging in-store inventory

At least at the outset, the advantage may go to companies with a strong brick-and-mortar presence.

“I see this as more of an opportunity for store-based retailers to jump on,” says Nikki Baird, managing partner at Retail Systems Research, which gives advice to the retail industry about adopting technologies. They can leverage their existing inventory to fulfill that demand. And Amazon has been building out regional distribution centers across the U.S.; Walmart already has inventory in more than 4,000 stores.

Indeed, more retailers – including Macy’s (M) – are investing in ship-from-store capability, taking online orders and routing them to stores; customers can either pick up from the store or have the items delivered to their homes. “They’re putting crews together in a store, designating employees to fulfill online orders," Baird says. "As soon as you have that capability, you just need to figure out the delivery aspect. That’s not actual same-day delivery, but the next step is.”

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