At the Global Retailing Conference in Tucson, AZ last week, keynote speaker Terry J. Lundgren, CEO and President of Macy's, announced that the “Big Idea” initiative for his company in 2013 was to optimize their inventory. Explaining further, the desire is to convert as many sites as possible (500 in 2013 up from ~300 currently) in to distribution centers, making 90% of Macy’s inventory ubiquitous to the register and thereby exposing nearly their entire stock as ‘sellable’ at point of sale.
This is an incredible goal, but it is eminently achievable and is clearly part of a strategy which facilitates Macy’s competition with online retailers such as Amazon and eBay, as well as brick and mortar mainstays like Wal-Mart and Nordstrom who are offering accelerated shipment options which more traditional retailers fear will cut into their convenience quotient and thereby drive down sales within metropolitan areas such as New York, Boston and Chicago.
He stated that “Next-day delivery is a very, very real idea” but became far less enthusiastic at the idea of same-day service. "You just have to weigh the cost-value relationship."
While I absolutely applaud any effort to optimize the inventory and logistical process of any major retailer, both from a business efficiency standpoint as well as an environmental one, I (for the moment) remain skeptical of the long-term business impact that same-day service will have on the Macy’s and Saks of the world, and so I have to agree with his strategy.
This trend in same-day delivery has existed for some time now, but in reality it has been an absolute flop with consumers, with the mitigating factor being the premium which simply must be paid in order to make such delivery feasible to the retailer.
Now however, failures of past ventures such as the legendary collapse of Web-Van, or the shuttering of Kozmo, are not deterring major players from entering into this arena. Amazon Local Express Delivery, eBay Now, Google Shopping Express, and well-funded startups such as Postable and Instacart, show that players big and small believe that they may have figured out the alchemy that so clearly failed these earlier dot com attempts.
The question of course is two-fold.
First, what are they doing differently?
Certainly this is the area of dissemblance that provides the greatest hope for these initiatives. Larger players, with greater logistical prowess, are able to leverage their size, geographical distribution, advancements in logistics algorithms, robotics and big data to push down the associated costs.
For example, a same-day delivery package, that two years ago would have cost $90-$120 to deliver across town in Boston using a standard carrier can now be achieved within 2 hours, costing approximately $15-$20 by Fedex. But is this enough? Does this overcome the hurdle represented by the second part of our two-fold question? Namely;
Will people pay for it?
Based upon my understanding of the results of a recent study on this very topic by Boston Consulting Group, all signs continue to point to "NO". While the base cost for such services from logistical samurai FedEx rings in at around $13-$15 (before tacking on weight and distance) BCG’s study indicates that the affluent Millennial, who is the undisputed core demographic of such initiatives, is only willing to pay about $10 for such a convenience.
Add to this the “touchability” factor of shopping in-store, which offers very little inconvenience for the urban dweller, and the picture for mass acceptance of paid same-day delivery becomes quite bleak. What this leads to is the unavoidable conclusion that in the areas where such delivery options are most feasible, the desire for them is the lowest.
As I sit in my office, I realize that I have, within a few blocks of me; two major high-end department stores, a big box retailer and an electronics superstore. The convenience therefore of offering same-day delivery service to me on nearly any sort of purchase is ultimately trumped by the reality that if I need it that badly, and that quickly, I’ll simply walk over and buy it. I would only avail myself of such a service as a novelty.
I don’t dispute the concept that same-day delivery will become a reality on a large scale. It most certainly will!
But in the here-and-now, I think that the numbers continue to fall apart. I mean, if a master of package delivery such as FedEx (who doesn’t even offer the service in New York due to the city’s complexity of infrastructure) can’t figure out how to make it affordable enough for the target demographic to buy into, then how do eBay, Amazon or even Google stand a chance?
Quoting Rob Souza, a partner with BCG, "Same-day delivery will be a niche service in the near future. Retailers may choose to offer it to build customer loyalty, enhance brand awareness, or keep up with the competition. But it is unlikely to generate significant revenues for either retailers or carriers."
What this means to me is that if there is a strategy for successful same-day delivery in fashion at this time, it will focus heavily on a select subset of small, light-weight products, offered as a subsidized perk to that subset of high-end customers that their loyalty programs reveal to be their most likely candidates for promotion. Beyond that, if it doesn’t fulfill a clearly defined niche need for that the affluent millennial consumer, then I just don’t see it making sense.
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