Wal-Mart Joins Retail’s Rush to Same-Day City Delivery

This story appears in the Oct. 22 print edition of Transport Topics.

A push by retailers to provide faster delivery of goods purchased online is stimulating demand for same-day delivery and investments in new companies.

Wal-Mart Stores Inc., the world’s largest retailer, earlier this month started a same-day delivery service for online orders in 10 urban markets, including Northern Virginia, Philadelphia and Minneapolis.

The move is seen by industry analysts as a way to counter growing efforts of online retailer Amazon.com and several others to woo customers with discounted shipping rates and faster delivery. They also said that, in time, this trend could chip away at business that traditionally has belonged to parcel and less-than-truckload carriers.

The “Walmart To Go” program charges customers a flat delivery rate of $10, regardless of how much they buy. Orders can be placed until noon, and customers can pick a four-hour window for same-day delivery. The goods are delivered from local stores by independent couriers under contract to UPS Supply Chain Solutions.

An order of office supplies placed by Transport Topics at about 10 a.m. on Oct. 17 arrived before 6 p.m. that day to our offices in Arlington, Va. The delivery was made by Loren Johnson, a driver for Transborder Express, a courier based in Medinah, Ill.

Wal-Mart spokeswoman Amy Lester, in an interview with The Associated Press, said the company wants to provide greater convenience to customers and is testing same-day delivery during the holiday shopping season “to learn and better understand what our customers want.”

In a recent Wal-Mart customer survey, a majority of respondents said they would consider same-day delivery if available, and more than half said they would use it at least monthly.

Besides Wal-Mart, Amazon.com is rapidly building out a national network of local distribution centers to enable delivery of virtually any product to customers in two days or less. The Seattle-based company already provides same-day delivery service in some areas and operates a grocery delivery service in Seattle called Amazon Fresh.

Mike Roth, vice president of North American operations for Amazon Fulfillment, said same-day shipping is a “great strategy,” but logistically “one of the most challenging.”

Speaking to students at the University of Maryland on Oct. 12, he said, “It’s what customers want, but it is also an expensive service.”

He noted a number of well-financed Internet delivery start-ups that failed over the past two decades, including Webvan.com and Kosmo.com.

Amazon.com paid out nearly $4 billion for shipping in 2011, but collected only $1.6 billion in revenue from customers to cover it.

In financial reports filed with the Securities and Exchange Commission, Amazon officials said they expect the net cost of shipping to continue to increase as customers take advantage of low-cost options.

Online retail sales account for 8.7% of total retail sales but are growing 10 times faster than overall retail sales, according to comScore Inc., an Internet research firm based in Reston, Va. A survey of online shoppers found that free or low-cost shipping was the most influential factor in whether to buy goods.

The efforts of Wal-Mart and Amazon.com appear to be just the beginning of a larger battle to provide same-day delivery service with possible implications for both parcel and less-than-truckload carriers.

In August, UPS Strategic Enterprise Fund invested

$2 million in a British start-up called Shutl, which uses couriers to deliver goods ordered from stores in as little as one hour.

The 2-year-old company is planning to launch service in the United States next year, starting with New York City and San Francisco in the first quarter, followed by a large roll-out in major cities throughout the United States and Canada.

“We are ready for the U.S., a market that we estimate will be worth around $26 billion by 2016,” said Tom Allason, founder and CEO of Shutl.

Another delivery start-up is ShopRunner, a company led by former Yahoo chief Scott Thompson that offers unlimited two-day shipping for a group of 60 retailers to compete with Amazon, said Cathy Roberson, an analyst with Transport Intelligence LLC in Atlanta.

Other new ventures include Postmates, TaskRabbit, Instacart and Uber, an on-demand limo service that is considering delivery goods as well as people, Roberson said.

FedEx Corp., the nation’s largest express carrier, is testing the market for same-day delivery in about 20 cities, including Phoenix, Los Angeles and New York, Bloomberg News reported.

“We are convinced that innovative logistics concepts that enable a faster, more comfortable and more reliable delivery will act as significant growth engines for

e-commerce,” said Andreas Haug, a partner at e.ventures, a venture capital firm based in San Francisco that is investing in Shutl.

Jos White, a partner at Notion Capital, which is also investing in Shutl, said the company provides an “innovative solution to the ‘last mile’ delivery challenge by giving customers the products they want, when they want them.”

For its part, UPS spokeswoman Susan Rosenberg said the investment in Shutl is aimed at helping the company determine whether the business model is “scalable” and how easily it could be integrated into current parcel operations.

“We’re definitely looking at the same-day space and evaluating it,” Rosenberg said. “We’re looking at the trade-offs between price and service. What are consumers willing to pay for same-day service?”

Residential deliveries currently account for about one-third of UPS’ package delivery business, compared with about 15% a decade ago, Rosenberg said.