EBay pumps up retail wars, and you could benefit

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EBay unveiled a big expansion of the eBay Now same-day delivery service on Monday as the company battles with rival Amazon.com for dominance of the emerging online local commerce market.

EBay Now, which delivers products from stores including Target, Walgreen and Best Buy in as little as an hour, was launched last year in San Francisco and San Jose, Calif., and in borough of Manhattan in New York City.

The company is expanding the service to Brooklyn and Queens in New York and to the Bay Area peninsula, between San Francisco and San Jose, in coming weeks. Chicago and Dallas will be added later this summer, and areas outside the United States may be included in the future, eBay executives said.

EBay's aggressive rollout comes as Amazon builds more warehouses closer to its customers, which will help the world's largest Internet retailer offer faster delivery.

Because EBay does not own inventory and avoids running warehouses, it cannot directly compete with Amazon. Instead, it is partnering with retailers to create a network of physical stores that in effect will operate as mini storage and distribution hubs for online purchases.

"This is eBay's answer to Amazon getting fulfillment centers closer to consumers," said Ron Josey, an analyst at JMP Securities.

Both companies are chasing the latest frontier in e-commerce: the 75 percent of retail spending that happens within 15 miles of the consumer's home.

This is a $2 trillion-a-year market in the United States that includes products suited to immediate neighborhood shopping, such as cleaning products, groceries, and health and beauty items, according to JPMorgan estimates.

If EBay, Amazon and other companies can deliver such products quickly enough, they could grab a bigger share of this local market, JPMorgan analysts, including Doug Anmuth, wrote in a recent note to investors.

Google, the world's largest Internet search company, is pursuing the same opportunity through its Google Shopping Express test, which started same-day deliveries in the San Francisco Bay Area earlier this year.

Wal-Mart Stores is also trying out same-day delivery, testing Walmart To Go in a handful of cities.

For retailers—either doing their own same-day service or going through eBay Now and Google Shopping Express—such efforts may help them capture online orders that otherwise may go to Amazon.

"If you want something quick, it's even quicker than Amazon," said Matt Nemer, an analyst at Wells Fargo. "Amazon doesn't have physical stores really close to consumers, so that's an edge retailers have."

Grouping deliveries

Same-day delivery works best if online orders are grouped together from many different stores in the same area, eBay CEO John Donahoe said.

"No one retailer can do that on their own," he added. "We are a consolidation point to help make the economics work."

EBay Now charges $5 for delivery of online orders over $25, but Wall Street is concerned that the company will struggle to make a profit from the service.

Donahoe said that aggregating as many orders as possible from as many stores as possible in a small area will help.

"You want scale and density," he said. "If we can consolidate 20 retailers and get 200 or 300 deliveries a day in a single area, it lowers the cost."

EBay uses its own couriers currently but is testing the use of other couriers, effectively plugging online orders into existing delivery routes.

"We are testing the collaborative consumption approach," Donahoe said, comparing the new effort to Uber, a start-up that matches empty limousines and cabs with people who need a ride.

"At any given moment there's a driver two minutes away from everywhere," he said. "If we have a delivery person five minutes away from any retailer and five minutes from any consumer, you can make it more economical."

This approach has the potential to lower eBay Now's cost, according to Gil Luria, an analyst at Wedbush Securities.

"EBay is paying its own couriers, and they may be sitting around for much of the day," Luria said. "If they use outside couriers who are already making other trips in the area, then eBay will only pay for specific deliveries."