Same-day delivery wars: The need for speed
Amazon CEO Jeff Bezos kicked the same-day delivery conversation up a notch recently when he announced the company is working on drone delivery for packages weighing less than five pounds.
While drone delivery certainly stirs the imagination and grabs headlines, it is still just a blueprint. Back down on the ground, traditional retailers are trying defend their market share from Amazon and other online retailers by offering same-day delivery.
Home Depot is the latest big-box retailer to join the same-day delivery wars. Executives from the home improvement retailer explained at its annual analyst day that it is investing in its supply chain in an attempt to offer same-day shipping and delivery on 100,000 items.
On the day of the announcement, Home Depot CEO Frank Blake told CNBC's Jim Cramer on "Mad Money" that the company would launch same-day delivery next year but that no one should expect drone delivery anytime soon, as "our products weigh more than five pounds."
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Same-day delivery is a major logistical feat for many retailers, but, as consumer expectations evolve, it is critical.
Though the vast majority of retail sales are still made in-store, online shopping is grabbing market share, and its growth is explosive.
As the leading online retailer, Amazon has been on the forefront of accelerated delivery, and it is largely responsible for changing consumer expectations on timing across the board. The online behemoth has just announced that it is expanding of its grocery ordering and same-day delivery service to a third market—and that's without drones.
KeyBanc retail analyst Ed Yruma thinks the need for speed in delivery will only get stronger, with rapid shipping replacing free shipping as almost a requirement for consumers.
"Clearly there's been a race to get it faster and cheaper to the consumer, [who] is going to expect that they know when the package is going to arrive and ... to arrive fairly quickly," Yruma said.
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Same-day delivery for grocery ordering through AmazonFresh doesn't come cheap. Shipping is free for orders over $35, but Amazon charges $299 a year for the service in San Francisco and Los Angeles (though it includes a subscription to Amazon Prime, which is normally $79).
It will be interesting to see how brick-and-mortar stores use their physical locations as distribution centers to fulfill online orders. Since they already have a lot of merchandise near consumers already, more and more retailers will be able to make same-day delivery a reality.
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Mall operators don't want to be left behind, either. IBM estimates that department stores' online sales grew more than 61 percent on Black Friday. Those stores are the anchors that used to pull shoppers to shopping centers, so mall operators need to get creative.
The Palo Alto, Calif.-based start-up Deliv has announced partnerships with four operators covering more than 660 malls, including Simon Property Group and General Growth Partners, offering same-day delivery for merchandise bought in-store or online.
Deliv describes its sharing-economy business model as "crowdsourced delivery personnel," who are equipped with technology that lets shoppers to track purchases in real-time.
Not to be left behind, Wal-Mart offers same-day delivery in five markets and says it can offer the service in other areas when customers demand that option.
Given the trend, that might be sooner rather than later.
—By CNBC's Courtney Reagan. Follow her on Twitter