Drones or not, same-day delivery part of retail future

Cox Newspapers

Amazon CEO Jeff Bezos’ suggestion last week that the online giant could use drones in the future to deliver packages touched off a heated national debate, from skepticism over the practicality of such a plan to questions about its impact on privacy and safety.

Many simply called it a publicity stunt.

Missing from the discussion, however, was the basic question of why. If such a plan were to become reality, how would it benefit Amazon?

The answer: The company wants to make same-day deliveries of online purchases as convenient as grabbing a can of Coca-Cola from a vending machine, logistics and retail experts said.

Just as Amazon influenced the industry to make two- or three-day free shipping the norm through its Amazon Prime membership, it wants to do the same with same-day delivery.

“That’s actually critical for the future of retail,” said Marshal Cohen, a retail analyst with New York-based NPD Group. “People have an expectation of instant gratification.”

It’s also a balancing act. Same-day delivery can be expensive and depending on the size of the item could possibly outweigh the benefits of fulfilling the consumer’s desire. But to decline to do so opens a window for a competitor to fill the vacuum.

Some brick-and-mortar retailers, such as Home Depot, are pushing a work-around: in-store pickups of online orders. Simply use the Internet to find the item and have it shipped to one of the Atlanta-based home improvement retailer’s stores. Customers already in the buildings will be guided to terminals to place orders or be instructed to use their cellphones if they can’t find products on shelves, spokesman Stephen Holmes said.

Others that have made in-store pickup part of their strategy include Toys R Us, Target and Bed Bath & Beyond.

Still, with the importance of online sales, retailers recognize that they will soon need a same-day-delivery strategy, also known as the “last-mile” in logistics, the experts said.

It won’t happen this holiday season, but the gifts you give in 2014 could be delivered the day of purchase by your next-door neighbor. A number of new companies, such as Palo Alto, Calif.-based Deliv or local startup Kanga, are springing up to offer many of us the opportunity to become independent contractors by using the extra space in our cars for deliveries.

For its part, Amazon also has struck a deal with the cash-strapped U.S. Postal Service to deliver packages on Sundays in New York and Los Angeles, with intentions to roll out to other metro areas at a later date, according to a Wall Street Journal article last month.

While price remains the biggest driver of retail purchases, convenience increasingly is becoming its equal. Americans — overwhelmed by traffic, soccer game schedules and longer workdays because of access to work emails on smartphones — are looking for ways to scratch chores off their lists.

The retailer that can have an online purchase made in the morning waiting at the door in the evening wins.

“It takes same-day purchases from being a premium service to a quasi-normal service,” said Brian Kinsella, vice president of order management from Atlanta-based Manhattan Associates, which helps retailers on issues of warehouse management.

But making same-day delivery work is easier said than done. With already-thin margins because of the constant competitive pressure to discount, retailers don’t have much wiggle room to add the cost of same-day deliveries. This is especially true for brick-and-mortar operations, which have the extra expense of physical buildings and thousands of store employees.

Nor can retailers build the mega-warehouses near key metro areas that have become a staple of Amazon. Some of Amazon’s warehouses are the size of 10 or more football fields.

And the idea of drones seems to be off the table, for now. Most analysts and media dismissed Bezos’ plan as far-fetched or unaffordable. Bezos said in a “60 Minutes” interview that aired Dec. 1 he wanted to deploy drones to deliver packages of 5 pounds or less to homes in 30 minutes after they are ordered. He suggested the operation could be up and running as early as 2015.

Companies in the logistics business, such as Sandy Springs, Ga.-based giant UPS, said such a program has possibilities, but is not under immediate consideration.

“We’re in the logistics business and have been innovators for the benefit of our customers for decades,” said UPS spokesman Andy McGowan. “The commercial use of drones is an interesting technology, and we’ll continue to evaluate it.”

The technology also faces a panoply of issues that must be resolved before commercial drones become widespread, including safety and privacy issues. In the United States, it’s still against the law to fly drones for commercial use in virtually all cases beyond federally approved test flights. But the Federal Aviation Administration plans to integrate unmanned aircraft into the nation’s airspace by September 2015.

In the meantime, strategies such as in-store pickup of online orders have shown promise. Home Depot, for instance, said its online business rose to 3 percent of revenues in its most recent earnings report, an uptick from the 1 percent share online business occupied in the company’s revenue just a few years before.

That’s an important tool for the home improvement retailer because a typical Home Depot store stocks about 35,000 items, but there are as many as 600,000 items available online.

To increase the speed of shipping for those who want that option, Home Depot also is opening a $65 million, 1 million-square-foot Fulfillment Center in Locust Grove, Ga., early next year.

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