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Published: August 19, 2013
 / Winter 2013 / Issue 73

 
 

Same-Day Delivery? Not So Fast

Traditional retailers can outshine their online competitors in the distribution game.

Note: This article was originally published by Booz & Company.

Offering customers free same-day delivery has long been an elusive goal for e-tailers. Their motivation is simple: If e-tailers can give customers the near-instant gratification of buying in a store, they can eliminate one of the most powerful advantages held by their bricks-and-mortar competitors. Alas, costs and complexity have largely kept same-day delivery (defined here as delivery between sunup and sundown on a weekday) out of reach and, at best, a niche offering.

There have been some notable recent developments, however. In July 2013, eBay unveiled an expansion of its eBay Now same-day delivery service into more areas around San Francisco and New York, with plans for Chicago and Dallas. On the heels of that announcement, Amazon said it would hire an additional 5,000 workers to staff its increasing number of U.S. fulfillment centers. Both are competing with Google Shopping Express, which launched a pilot service offering same-day delivery from a limited group of participating retailers to the San Francisco area in early 2013.

However, the demand for same-day delivery might be weaker than expected. According to a new Booz & Company survey of more than 1,000 online shoppers in the United States, most customers don’t necessarily need same-day delivery and, in fact, in many cases they don’t want it. They are getting home from work, going online, and placing an order. But they don’t want the item to arrive while they are making dinner or putting their kids to bed, let alone have it sit on their doorstep overnight.

This is where it gets interesting for traditional retailers that are willing to rethink their business model. By using their hundreds or thousands of physical storefronts as local distribution centers, bricks-and-mortar retailers are actually better positioned than e-tailers to deliver products rapidly to customers. And although our survey focused on the U.S., we believe the findings are applicable to other countries with well-developed retail and transportation sectors. With the possibility of free, ground-based, next-day delivery to consumers, the tables may be turning.

Paying and Waiting

To better understand online shopping habits and expectations, we asked consumers how much they would be willing to pay for delivery, and how long they would be willing to wait for their order to arrive. When it came to the first question, the answer was pretty blunt across the board: nothing or almost nothing. Nearly half of our survey respondents said they were unwilling to pay any fee whatsoever for delivery, and only about 10 percent said they would pay US$10 or more for same-day delivery. This finding confirmed earlier studies that have shown that customers’ online purchasing decisions often hinge on the issue of free shipping.

How long are customers willing to wait? Survey respondents indicated that overnight delivery was only 5 percent less valuable to them than same-day delivery, and three-quarters agreed or strongly agreed that they would be more likely to purchase goods from a retailer that offered free next-day delivery than from one that did not. The survey also revealed that 60 percent of online shoppers place most of their orders after traditional working hours (5 p.m. or later). Only 4 percent of shoppers make their purchases by 9 a.m., and only another 14 percent do so by noon.

Given these findings, the future may not bode well for several new, high-profile shipping offerings. They are either too expensive or too limited in their ability to accept orders after business hours—or both. For example, eBay Now’s service levies a $5 fee. AmazonFresh uses a subscription model, charging customers in Los Angeles $299 per year for “delivery by dinner” of orders placed by 10 a.m. Some traditional retailers are also throwing their hats in the ring. For a fee of $15 per order, Nordstrom will deliver goods to customers in La Jolla, Calif., Seattle, and Bellevue, Wash., by 7 p.m. if they are purchased by 1 p.m. that day. But these and other attempts at same-day delivery are likely to struggle to expand beyond their narrow geographies.

 
 
 
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