2 Retailers Cracking the Same-Day-Delivery Barrier

It's been called the "holy grail" of online retail. Providing same-day product delivery on a national scale promises to be a huge advantage to any company that's able to bring it to online retailing. But it's a logistical nightmare, loaded with costs that could balloon out of control. 

The reigning king of that space, Amazon.com (Nasdaq: AMZN  ) , offers same-day delivery in a few cities but has worked instead on shortening its overall delivery window and lowering shipping costs to its customers. In a conference call this summer, management dismissed the whole same-day idea, saying that "we don't really see a way to do same day delivery on a broad scale economically." 

Two other major retailers are testing that premise, though. And they're aiming to get deliveries into customers' hands just hours from when they make their order online. These attempts could spell a boost to e-commerce and a serious challenge to Amazon's growing dominance of the retail world. That's if the retailers manage to pull it off.

Your personal shopping valet
eBay
(Nasdaq: EBAY  ) , for its part, is taking a service-driven approach to the problem, with a delivery service it just launched in San Francisco. The program, called "eBay Now," is available only in that market, but the company plans to expand it to other cities soon. Through the service, Bay area bidders can order products from eBay.com or any Apple device and receive them just hours later. 

The app works as a sort of personal shopper service, whereby local merchants including Best Buy, Target, and Macy's offer their own goods for sale. Once you make your order, a courier from the company, a shopping "valet," calls you up and arranges delivery. One of the first reviewers of the app on Apple's iTunes gave the service five stars, bragging of "shoes delivered to Golden Gate Park in under an hour! "

eBay is betting that customers will pay up for instant gratification like that and is offering the service at a rich fee of $5 per item.

The service dovetails well with eBay's recent moves away from its role as silent middleman and into a more full-service facilitator of commerce. The company has also taken to helping sellers export  their products overseas, for a fee. This service-for-a-fee strategy stands in stark contrast to Amazon's aggressive shipping offers, which are aimed at shouldering a growing portion of the shipping costs and offering rock-bottom prices. As the company spells out in its annual report, "[W]e believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers."  

An army of warehouses
Wal-Mart
(NYSE: WMT  ) has taken a very different approach to the same-day-delivery problem. Call it the big footprint model. 

To get their Wal-Mart wares the same day, customers just need to place orders online before noon and then choose a four-hour window for delivery. Wal-Mart sends the shipment out for delivery from its own stores using UPS trucks. For now, the retailer is offering the service on a wide selection of products in select cities. The cost is a flat fee of just $10 per order, making it more economical for buyers to load up on multiple items from Wal-Mart's huge selection.

The key to the company's success here is that it boasts 4,000 stores , which are nicely spread out across all 50 states . Many of these locations could function as mini-distribution centers for a national delivery service. 

Contrast that footprint with Amazon and its 40 domestic distribution centers in just a handful of states, and you can see Wal-Mart's potential advantage. After all, logistics and distribution built Wal-Mart into the powerhouse that it is, so there's good reason to think that if anyone has a shot at cracking the same-day-delivery nut, it's Wal-Mart.

Foolish takeaway
But both eBay and Wal-Mart's services are limited test runs that shouldn't have much of an impact on sales this holiday quarter. So we won't know for a while whether they're a success. The long-term trend is clear, though: Retailers are close to breaking the same-day-delivery barrier and have every reason to keep trying until they do.

And that spells bad news for Amazon. Valued at more than 250 times earnings, Amazon needs to sustain the 30%-plus revenue growth it's been notching lately. That doesn't seem likely to me, particularly with competitors offering nearly instant gratification at a reasonable price.

Everyone knows Amazon is the big bad wolf in the retail world right now, but at its sky-high valuation, most investors are worried that its share price will get knocked down instead of those of its competitors. We'll tell you what's driving Amazon's growth, and how to know when to buy and sell this company, in our new premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as their story changes, so click here now to read more.

Fool contributor Demitri Kalogeropoulos has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services recommend Amazon.com, eBay, and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 27, 2012, at 3:39 PM, madmilker wrote:

    "There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else." - Sam Walton

    Since Sam didn't take the hyphen from Wal-Mart years ago and replace it with a star Wal*Mart...

    and he didn't move Wal*Mart's Global Procurement Office to Hong Kong and than to China....

    and he didn't come up with the idea of putting less than 5% foreign in all the Wal*Mart stores in China...

    and he didn't partner with Li Ka-shing on a port in Mexico...

    and he didn't hire an experienced lobbyist, field organizer and media relations strategist....

    nor did he hire a Russian that was said to have had “irretrievably soured relations” with First Deputy Prime Minister Viktor Zubkov and his team, and with most influential United Russia members back in 2009....

    that "somewhere else" that Sam talked about...

    is becoming a very popular place.

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