Crowd Sourced, Delivery Options Come to Retailers' Rescue
Retailers from Amazon to Macy’s to Walmart are reporting that increased shipping costs and subsidization of shipping are eating into their profit margins. Many retailers are raising the threshold for consumers to get free or reduced cost shipping in an effort to manage this impact. But there is another trend that is pushing them even further into the red – the rising pressure to get from two-day and next- day to same-day shipping.
Increasing the speed of delivery has two major costs to retailers. The first and most obvious one is the need to pay shipping companies a premium for fast shipment. The economics of current delivery models puts a premium on fast shipping as delivery incumbents have high fixed costs and are unable to efficiently respond to pulses in demand. The second is the need to position desired inventory close to where consumers are.
Amazon is addressing the inventory positioning challenge by building distribution centers in major metropolitan areas. While this can be an expensive proposition, it is often necessary to fulfill same-day or next day delivery to a large percentage of the U.S. population. Amazon is pre-positioning inventory in these distribution centers based on “big data” mining techniques that project the demand for goods at the SKU level at each distribution center.
This alternative inventory positioning approach takes advantage of the inventory in existing brick-and- mortar retail locations. Many large, national retailers have hundreds or thousands of stores positioned close to their customers. Currently many retailers leverage local placement of inventory by offering “Buy Online, Pickup in Store” capability, where the consumer finds the goods online, checks availability, places the order and either pays online or pays when they pick up the order at the store. There is research to suggest that when retailers are able to display the availability of products in store, their store orders actually increase. However, this is less than desirable for many shoppers: they must go to the local store which is what they may have been avoiding in the first place.
A startup called Deliv (www.deliv.co) takes a disruptive approach to offer retailers a cost-effective solution for sameday delivery. By combining technology and a scalable, on-demand, crowd sourced delivery force, they efficiently turn brick and- mortar stores into distribution centers. Deliv powers same-day delivery of goods purchased in physical stores or ordered online and fulfilled from local store inventory. Backed by the largest mall operators – General Growth Properties, Macerich, PREIT, Simon Properties, Taubman and Westfield Corporation – Deliv has instant access to the inventory in stores in malls across the country for fulfillment of online orders. The company also has a number of partnerships with non-mall-based retailers in many regions. The price of the delivery is set by the retailer and is paid by the shopper (typically around $5 to $10), but the fee can be subsidized by the retailer if desired. Deliv is available in eight markets, including Chicago, Houston, Los Angeles, Northern New Jersey, San Francisco, San Jose, Seattle and Washington, D.C.
In markets served by Deliv, a holiday shopper is able to purchase goods at the mall and have them delivered to their home for a single charge regardless of the number of packages. This option is especially popular in large, urban areas where shoppers frequently arrive on foot using public transportation and may purchase multiple, heavy or bulky items. Tourists can also have their bags delivered to their hotel. Participating retailers may also use Deliv for orders placed by phone.
All a retailer needs is a web-enabled device on which they can create a Deliv order on Deliv.co.
The most exciting use of Deliv is for same-day delivery of online orders fulfilled out of local retail inventory. In this case, integration of the Deliv offering with the eCommerce engines of IBM and Manhattan Associates allows retailers using those platforms (a large majority of all national retailers) to easily offer same-day delivery service by Deliv through the “Buy Online, Pickup in Store” functionality. In this case, the software checks to see if the requested product is available at a nearby store (within a 10 to 15 mile radius) and asks the shopper if they want same-day delivery, again for $5 to $10.
Imagine being offered next day shipping for $19.95, two day shipping for $14.95, and same-day shipping for $5. The choice is clear. Macy’s is currently offering the Deliv same-day, eCommerce service in eight geographies and is leveraging the inventory of about 50 stores to fulfill orders. Retailers are in a delivery arms race and it is clear that free, same-day shipping will be the norm in two to three years, if not sooner. It is also clear that retailers are looking for alternatives that help keep them out of the red. The use of scalable, crowd sourced labor and the ability to leverage in-market inventory at retail locations will be the key tools in this race.