News Column

Walmart, eBay Face Challenges With Same-day Delivery

Oct. 23, 2012

Heather Somerville, San Jose Mercury News


Retailers testing same-day delivery service in the Bay Area may soon find that giving customers what they want as fast as they want it is tricker -- and costlier -- than they bargained for.

In their scramble to keep pace with online giant Amazon, Walmart and eBay (EBAY) this month announced plans for same-day delivery in San Francisco and San Jose. Some analysts caution that same-day delivery -- the latest Holy Grail for retailers -- is a financial risk and logistical nightmare to most anyone but Domino's Pizza and the local florist.

"It's incredibly hard to pull off, said Fiona Dias, chief strategy officer at ShopRunner, a web service that coordinates shipping for retailers. "We haven't found a way to economically do same-day delivery."

But a lineage of failed delivery services like Webvan, an online grocery business that became a legendary dot-com failure, haven't deterred retailers from striving to satisfy the ever-higher demands of consumers who want instant gratification.

"That's the Internet," said Stephen Baker, vice president of industry analysis at NPD Group. "We already get instant delivery of our music, our movies."

Some purchases are still worth a stroll through the mall -- luxury jeweler Tiffany & Co. isn't likely to send engagement rings same-day delivery, nor would customers want to give up the glitzy, Champagne-filled shopping experience. But the convenience of quick, home delivery appeals to shoppers like Lyshone Griffin of Oakland. Standing outside that city's Walmart last week, she said she would happily pay the extra money for same-day delivery of large furniture, such as a bed, that she needed urgently and couldn't pick up from a store herself.

Amazon and Walmart promise customers that for just a few dollars extra their online purchases will be dropped at their front door within hours of ordering -- or in eBay's case, in less than an hour. After all, there's nothing quite as exciting as a knock at the door from UPS delivery, holding the new flatscreen TV you ordered even before the charge appears on your credit card.

But analysts note that packages will reach customers within a day only if companies have enough merchandise and enough stores and warehouses spread throughout a delivery area. The other snare that often trips up retailers, said Dias, is that they can't control the delivery. In some cases, the delivery guy may be a college student trying to earn a few extra bucks working as a contract driver for eBay.

"It's not a same-day guarantee, it's a same-day maybe," Dias said.

Then there's the cost, which may discourage both retailers and customers. Walmart charges $10 for deliveries of any size, which Dias expects will cover less than half the cost of one order. eBay offers three free deliveries, after which customers are charged $5. Orders must be at least $25.

"The math doesn't make sense," Dias said. "It only makes sense if the truck is full. It doesn't make sense if there's only one package."

But for a few Walmart customers in Oakland , the delivery fee is too expensive; they're watching every dollar. Unloading her bags from a cart outside the store, Maria Rivera of Alameda said same-day delivery was "not for me." She said doesn't have a computer at home to shop online,

and even if she could borrow a friend's, the extra $10 was too much.

Even Amazon hasn't found a way around the high cost. Chief Financial Officer Thomas Szkutak said this year that same-day delivery on a broad scale is not economically feasible. The company began same-day delivery in 2009, but the service has been limited to a handful of cities. However, Amazon has also been aggressively expanding other delivery services and has grown to 40 warehouses in the U.S.

But Amazon's efforts likely won't sway Sunnyvale resident Andrey Abutin, who canceled his Amazon account after the company began collecting sales tax in September. Add on the $8.99 cost of same-day delivery, plus about a $1 per-item fee, and Abutin said he'd rather save money and shop at a local store.

"You're looking at way too much overhead for anything costing less than $150," he said.

Abutin, 28, prefers Google (GOOG) Shopping, which he says allows him to compare prices across dozens of websites without leaving his computer chair.

But Amazon has raised the bar on retail delivery and competitors are running to catch up. "Everybody is assessing this -- whether or not they want to pursue it, and whether or not they can," said Bruce Cohen, retailer and consumer strategist with Kurt Salmon in San Francisco. "For businesses, it's innovate or step aside."

eBay's delivery service, currently limited to San Francisco and available only through a free iTunes app called eBay Now, allows customers to get purchases hand-delivered to anywhere they want within an hour. If the customer wants to return the item, the driver will schedule a pickup and the refund appears in the customer's PayPal account.

On a call with reporters Wednesday, Chief Executive Officer John Donahoe said the app is part of eBay's expansive mobile strategy to partner with local retailers and entice more customers to sell and buy from their smartphones. The company gained about 800,000 new mobile users in the third quarter.

Company spokeswoman Lina Shustarovich said eBay Now deliveries have included an iPhone charger to a bar and a sweater to a chilly customer in a park.

She said: "Our goal is to bring the customer the product wherever they happen to be."

Distributed by MCT Information Services

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Source: (c) 2012 San Jose Mercury News (San Jose, Calif.)

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