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 Macy's, the nation's largest department store chain, already offers
same-day delivery services in eight markets. By partnering with
Deliv, an Uber-like startup that uses a fleet of contract drivers to
pick up online orders from stores and malls, the retailer has found
a cost-effective way to expand, said the Macy's official, who spoke
on condition of anonymity.
The official said that the initial plan is to offer the service in
several more markets but there nay be additions later this year, and
that could take it ahead of Amazon – which currently offers same-day
delivery in 14 markets. Currently, Macy's is offering the service in
Houston, San Francisco, San Jose, Seattle, Washington D.C., Chicago,
Los Angeles and New Jersey. It couldn't be immediately ascertained
which ones were being added.
The department store company's efforts come as the "last mile" - the
final portion of a package's journey that takes it from a retailer's
warehouse or store to the customer's front door - becomes the next
battleground for retailers trying to increase online sales. Macy's
has one possible advantage over Amazon in that it has 886 stores as
of May 2 in the U.S. from which to source products for delivery –
meaning the packages often have less distance to travel - against 50
fulfilment centers and smaller distribution facilities run by
Amazon.
But fast shipping is costly and most retailers who offer it
currently lose money on the service, warn logistics experts. For
example, analysts estimate that Amazon loses $1 billion to $2
billion a year on its U.S. Prime service, which promises delivery
within anything from one hour to two days. Amazon's net shipping
cost rose to $4.2 billion in 2014, up from $3.5 billion a year
earlier.
Macy's spokesman Jim Sluzewski confirmed the retailer's plans to
expand the service this year but declined to give further details.
Faster delivery also becomes a differentiating factor when new
online retail sites like Jet.com, which launched on Tuesday, promise
to offer cheaper prices than Amazon. The startup, which will charge
$49 a year for membership, claims its consumers can get the lowest
price on anything they buy online, with the trade-off of being
relatively slow delivery service.
"RACE TO THE BOTTOM"
Even as Macy's rushes to extend fast delivery, many other
traditional retailers are far more cautious. The costs of same-day
delivery and ambivalence from many customers remain concerns,
analysts say.
Nordstrom Inc <JWN.N> has offered same-day delivery for $15 since
2011, but the service is still only available in three markets:
Seattle and Bellevue in Washington state, and La Jolla in
California.
A January survey of 5,118 online shoppers by UPS and Comscore found
that 85 percent of people surveyed were willing to wait five days or
more for their delivery.
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"The thing that's so perplexing about this last mile and same day is
that the consumers overwhelmingly prefer free shipping over speed,"
said Satish Jindel, a logistics consultant and president of SJ
Consulting Group.
That could change, said David Bell, a professor of marketing at the
University of Pennsylvania's Wharton School, and if consumers became
accustomed to same-day service, the result would be an expensive
"race to the bottom for retailers" who would not be able to compete
with Amazon on the delivery cost.
Macy's does not disclose how many items it has available for
same-day delivery, and Deliv will not say how many items it carries
for Macy's.
Amazon has more than a million products available for same-day
delivery.
Macy's charges its customers $5 for same-day delivery, but it is
unclear how much of its costs that covers. Deliv says its rates for
retailers are in line with the average $8 ground delivery cost of
carriers such as UPS and FedEx, but it was unclear whether that's
what it charges Macy's or whether it takes a loss to offer the
service to Macy's.
"It's very hard to compete with Amazon, but traditional retailers
have an advantage in that they already have all of their inventory
in place five miles from 90 percent of their purchasing population
at their stores," said Deliv CEO Daphne Carmeli.
"This is one of those opportunities to out-Amazon Amazon," she said.
Although Macy's does not break out details of its online sales or
shipping costs, analysts assume the company is losing money on the
service once additional costs are taken into account, including
finding the product, getting the package ready for delivery, and
restocking expenses.
"Only the biggest of retailers that are capable will be able to
afford these operations," said Jarrett Streebin, the CEO of EasyPost,
a shipping startup. He estimated costs per package could reach $20
or more with additional logistics processes and staffing to handle
the orders. "Who's willing to pay the bill?" he asked.
(Editing by Stephen R. Trousdale, Peter Henderson and Martin Howell)
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