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June 23, 2014

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SURFACE & DOMESTIC TRANSPORTATION TRUCKING | RAIL | INTERMODAL | AIR & EXPEDITED | DISTRIBUTION 54 THE JOURNAL OF COMMERCE JUNE 23.2014 SURFACE & DOMESTIC TRANSPORTATION By Corianne Egan IS SAME-DAY SHIPPING a temporary fad, or will it take off and boost the profi ts of retailers and online shopping sites? Time will tell. The most recent major retailer to test the waters came this month, when Target Stores launched a pilot same-day shipping program that allows customers in select markets to receive shipments within hours of ordering. The rollout includes Minneapo- lis, Boston and Miami, where consumers can order products as late as 1:30 p.m. and, for a $10 fee, receive them at their door between 6 and 9 p.m. Target said it would use its stores as fulfi llment centers, which should quicken shipping times even for standard shipping. "Later in the year, we plan to roll out stan- dard shipping from 136 stores in 38 markets across the country," Target said in a press release. "By leveraging the store network as fulfi llment centers, we can offer faster, stan- dard shipping, typically one to two days and provide access to store-only items not previ- ously available from" Target's announcement came weeks a f ter G oog le Ma rket s a nd A m a zon announced plans to offer same-day shipping in select cities. Google launched same-day service in New York and Los Angeles via its delivery operation Shopping Express in early May. Amazon expanded same-day delivery to Dallas, Los Angeles and San Francisco in April, increasing its same-day service to 12 cities. Industr y analysts, however, think same-day shipping has little possibility of becoming profitable. "We don't think there's much of a market there," said Dave Ross, managing director of global trans- portation and logistics at fi nancial analyst Stifel. "Retailers will continue to experiment and test, but realistically it will only work in high-density areas, if at all. Even if it grows, it will end up just being a niche market." Satish Jindel, president of SJ Consulting Group, called the move a herd decision. "It's pure insanity," he said. "Target made this decision just to follow the others. It's the in- fashion thing to do, and it isn't going to work. It's going to die. Amazon can do it, because they're OK with losing money in order to be cheaper than anyone." Same-day shipping won't be profi table for big retailers, Jindel said. Amazon poured $25 million into a company called Cosmo in New York in 2000, which provided same-day shipping. It folded within the year, he said. Unless it's food, most custom- ers believe shipments can wait a day or two, he said. "They aren't making this decision in good business sense, and it's not for the cus- tomers," Jindel added. "No one is interested in it, and no one wants to pay for it. What customers want is free shipping." (For more on Internet-based retailing and distribution, see page 48). Google acts like a third-part y go- bet ween for retailers and customers. It of fers Google Shopping Express memberships for free, so customers pay nothing for same-day shipping during the fi rst six months of their mem- berships. Google uses drivers to pick up orders from retailers in each city, then deliver them to destinations. Google hasn't set rates for memberships when customers will be charged for the service. Ebay offers same-day shipping at $5 per order. Amazon charges $9.98 for the fi rst item and 99 cents for each additional item, according to its website. "The key, if a company is going to try same-day shipping, is scale," said Kevin Sterling, a research analyst with BB&T Capital Markets. "It has to happen in major metropolitan areas where you have density in order to at least break even. Breaking even in the same-day shipping market is a major victory." Target said the rollout of its program in Minneapolis was successful, and that it would monitor the success of the pilot in the city, Boston and Miami to determine future rollout plans. JOC Contact Corianne Egan at and follow her on Twitter: @CEgan_JOC. "Retailers will continue to experiment and test, but realistically it will only work in high-density areas, if at all." SAME-DAY INSANITY? Target joins Google and Amazon in offering a same-day delivery service that analysts say is all but a dead end

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