Posted 5/19/2014 12:00 am
Updated 7 months ago
The fight is escalating to deliver packages within hours after an order is placed online.
Wal-Mart Stores Inc. of Bentonville and Amazon.com Inc. of Seattle recently expanded their pilot programs to offer same-day service to customers in select cities. Both companies in some cases are using their own trucks and drivers to deliver the items, which can range from groceries to televisions.
Wal-Mart started its program in 2011 in San Francisco and San Jose, California. In October it added Denver to the test program. In January Wal-Mart also began offering Denver customers the option of picking up their online orders at a Walmart store without leaving their cars, said Ravi Jariwala, a spokesman for Wal-Mart.
“As a retailer we recognize that customer behavior is shifting,” he said.
Customers aren’t concerned about where they place the order or how they receive the items, Jariwala said. “They just want to be able to shop and get what they want and get it at a great price. And that’s what we’re committed to,” he said.
Amazon, meanwhile, has several programs underway to get merchandise, including groceries, to customers the same day it is ordered.
In November Amazon started offering Sunday delivery in two cities, and now the venture with the U.S. Postal Service has spread to 17 cities, none of them in Arkansas. However, Amazon expects to “roll out Sunday delivery to a large portion of the U.S. population in 2014,” according to a news release.
Meanwhile, Google last year introduced Google Shopping Express, which allows customers to shop online from several select retailers and have the items delivered the day they are ordered. The service currently is offered in parts of the San Francisco Bay area and Manhattan.
The retailers are providing home delivery service because it “comes down to the battle for the customers,” said George Anderson, editor-in-chief and associate publisher of RetailWire LLC, an online publication that covers the retail industry.
The retailers “want to be wherever the customer needs them to be to get the greater share of overall retail dollars,” Anderson said.
Online shopping for home delivery of groceries is not a new idea. In the late 1990s, publicly traded Webvan of San Francisco made a run at the business, but it was a casualty of the dot-com bust in the early 2000s.
Some retail analysts wonder if the passage of time has made same-day delivery any more viable.
“I think same-day delivery is a very niche market,” said Paula Rosenblum, managing partner of Retail Systems Research, a retail research and advisory firm based in Miami.
About 8 percent of all retail sales in the U.S. currently come from online, she said, and she doubted that many of those customers expect to have their merchandise within hours of clicking the “buy” button.
Still, while there might not be a huge demand for same-day delivery of nongrocery items, there might be a market for same-day delivery of foodstuff, Rosenblum said.
“The problem is: How do you make money at it?” she said. The average profit margin for grocery items is already only about 1 percent.
“And I don’t think it’s any easier to make money at [delivering groceries] now than it was 15 years ago,” Rosenblum said.
It’s unclear what the same-day delivery service will do for revenue. But Wal-Mart could use any increase in same-store sales, which have been slipping. In February the retailer reported its fourth consecutive quarter of declining sales at stores that have been open at least a year, a key indicator of a retailer’s health. For its fiscal year that ended Jan. 31, Wal-Mart reported revenue of $476.3 billion and net income of $16.022 billion. The previous year, Wal-Mart had sales of $468.7 billion and net income of $17 billion. Amazon, meanwhile, reported revenue of $75.5 billion and net income of $274 million for 2013. Amazon’s 2012 revenue was $61.1 billion and it lost $39 million.
Online sales are projected to grow. Forrester Research, a global research and advisory firm based in Cambridge, Massachusetts, said in a report released last week that online retail sales in the United States were expected to reach $294 billion this year, or about 9 percent of all sales in the country. And by 2018, sales are projected to reach $414 billion, or 11 percent of total U.S. sales.
In 2011, Wal-Mart began testing its online grocery delivery service in San Jose and San Francisco. Spokesman Jariwala said the program has been a success, but declined to say how much revenue the service has generated.
Wal-Mart now has about 10 specially built delivery trucks for the Bay Area. The vehicles have three compartments: one for frozen items, one for refrigerated items and one at room temperature.
“We have increased the number of trucks over the last year, because the … demand for the service continues to increase,” Jariwala said.
He said people are using the delivery service for their weekly grocery trips, but they’re also using it for a handful of items.
Customers pay the same for the items online to be delivered as they would in the store. There is a $5 to $7 delivery fee, though, depending on the delivery time the customer chooses.
Another test concept being developed in Denver allows customers to order groceries and other items online and then pick them up at any of the participating Walmart stores in the city, Jariwala said. The customers don’t pay extra for that service.
He said customers can go through the pharmacy’s drive-through to have their items delivered to their cars, or customers can pull into a parking area for the packages to be placed in their vehicles.
He said that a test program will be conducted at a Walmart in Bentonville later this year. But he wouldn’t say what the plans were for the service.
Jariwala also said he couldn’t comment on whether Wal-Mart would have to hire more employees for the service or other financial details surrounding the program.
He also wouldn’t say where the next online grocery delivery service would be located.
Amazon’s Same-Day Service
Amazon is offering its own same-day delivery service to compete with brick-and-mortar retailers. It has several programs to deliver products faster to customers.
It now offers Sunday delivery in 17 cities across the country. While the U.S. Postal Service is handling those items, Amazon has its own delivery trucks for its Amazon Fresh trial program, which operates in Los Angeles, San Francisco and Seattle.
Amazon also offers same-day delivery Monday through Friday in 12 major cities around the country. In cities such as Phoenix and San Francisco, customers can order items as late as 12:15 p.m. and get their shipment later that day.
With the same-day shipping options, Amazon is trying to make sure its items are always available, said Jan Dawson, chief analyst at Jackdaw Research, a technology and research consulting firm based in Provo, Utah.
But logistically, he said, Amazon couldn’t offer same-day service outside major cities because the cost would be prohibitive.
“If you move to a model where you have to pay for the gas for every individual delivery that the company’s making, it’s … not going to be as cost effective” as the deliveries that are all in a large city, Dawson said.
Retailers, though, are cautious about offering same-day deliveries because of the failures of companies such as Webvan, said Rob Howard, founder and CEO of Grand Junction Inc. of San Francisco, which offers software to support local carriers.
He said a retailer has to have enough business to support a fleet of vehicles. “And if you don’t have a lot of volume, your cost of delivery is really high,” Howard said.
He said now that Amazon is offering same-day service, smaller retailers will probably feel the need to offer it in order to compete with the online retailer.
“If your competitor is offering a same-day delivery program and you’re not, it’s a potentially lost sale,” Howard said.
Rosenblum, of RSR, said she thinks the only reason that Amazon is offering the same-day service is to see if the retailer can make money at selling groceries.
Same-day delivery of nongrocery items “is so niche, I don’t know why you would want to do it,” she said.