Free Shipping Isn't Enough: How Fast Is Fast?

For consumers it's now about free and fast. For sellers, it's about survival. But having hooked buyers on the fantasy of whatever they want, the minute they want it, what happens when only one company - Amazon - remains able to deliver? Especially when they start to raise charges for the privilege. JL

Elizabeth Holmes reports in the Wall Street Journal:

Free shipping isn’t enough any more. Online shoppers want fast shipping, too, and their expectations of an acceptable delivery window are shrinking.The new demands are largely a result of Amazon Prime. Tens of millions of Amazon Prime members pay $99 a year and get unlimited two-day shipping on millions of products. Now, the retailing giant is upping the ante, offering same-day shipping in some markets.
If laundry detergent or a box of diapers can arrive on your doorstep in a day or two at little or no additional cost, why can’t a cashmere sweater do that, too?
Free shipping isn’t enough any more. Online shoppers want fast shipping, too, and their expectations of an acceptable delivery window are shrinking.
The new demands are largely a result of Amazon Prime, rival retailers say. Tens of millions of Amazon Prime members pay $99 a year and get unlimited two-day shipping on millions of products, from snow boots to dog food. Now, the retailing giant is upping the ante, offering same-day shipping in some markets. Other retailers, whose default shipping option is often five business days or more, are scrambling to match the frenetic pace.
More than nine of 10 shoppers said they considered “same day,” “next day” and “two day” delivery to be “fast,” according to consulting firm Deloitte’s 2015 holiday survey of some 4,000 shoppers. At three to four days, only 63% called it “fast,” and just 18% of shoppers considered five to seven days “fast.”
And customers for the most part are no longer willing to pay extra for expedited delivery. Shoppers on average said they would pay at most just $5.10 for same-day service, in the Deloitte survey. A quarter of shoppers said they wouldn’t expect to pay anything at all.
With shipping an increasingly expensive part of the business equation, retailers are looking for cost-effective ways to ship faster. They are building more distribution centers, fine-tuning ship-from-store logistics and devising more creative delivery options.
“Amazon kind of set the path for everyone with Prime. People just expect things faster,” says Heather Kaminetsky, vice president of global marketing at Net-a-Porter, the luxury online retailer. It has invested in a fleet of more than 50 vans offering same-day delivery in London, Hong Kong and the greater New York area. More than half the orders it gets in New York are for same-day delivery, a service that costs $25 per order. Luxury retailers have an easier time convincing shoppers to pay for shipping because it is such a small fraction of the total purchase price.
At shoe and accessory label Cole Haan, faster delivery has helped lower the return rate. “When you go to a store, you have that wonderful delight of carrying the bag down the street,” says David Maddocks, chief marketing officer. “Online, after you click, you have to wait. And during that time you can fall out of love.”
Cole Haan offers free two-day shipping to online shoppers who spend more than $250. Nearly a quarter of customers either meet the threshold or pay $15 extra for two-day shipping, the company says.
Next month, Gap Inc., GPS 1.05 % which includes Banana Republic and Old Navy, will narrow its free shipping window to five to seven business days, down from seven to nine business days. To shave off those two days, the company is relying on new technology to better manage logistics and routing, a company spokeswoman says. It is continuing its “ship-from-store” program, filling and shipping some online orders from stores.
Everlane, an online apparel and accessories brand based in San Francisco, is attempting the fastest option yet—one-hour delivery in San Francisco and New York City’s Manhattan borough. In New York, there is no shipping charge for the one-hour service with the purchase of two or more items. In San Francisco, to gauge shoppers’ willingness to pay, Everlane charged a $2 service fee for the one-hour option and says it wasn’t a deterrent.
Everlane opened satellite distribution centers in the two cities, says Robert Cantwell, head of finance and operations, and it stocks about 10% of its inventory in those locations. Roughly three quarters of its styles—the most popular and new introductions—are eligible for the one-hour service. Minutes after an order is received, it is picked and packed, and then given to a messenger from Postmates, a logistics company that delivers by car, scooter, bicycle or on foot. One-hour delivery costs to the company are comparable to that of standard shipping from its main warehouse outside Chicago, Mr. Cantwell says.
Everlane considered enlarging the map where it offers expedited delivery and making the time window longer. But it discovered something unexpected: Same-day delivery isn’t as appealing to shoppers in reality as it is in theory.
“People are all over the place,” Mr. Cantwell says. They are shuttling between home, the office and errands in between, and a long, imprecise delivery window is a headache. In contrast, “one-hour delivery is getting you the package wherever you are.”
In the days of mail-order catalogs, home delivery of merchandise was considered convenient. Even just a few years ago, online shoppers were content to wait a week or two. Last year, the average delivery time for online orders was 4.1 days, down from 4.6 days in 2013, says Kevon Hills, vice president of research at StellaService, a customer-service analytics company. About half of packages were delivered within three days, up from about a third in 2013.
Some brands provide faster-than-expected delivery in hopes of giving shoppers a pleasant surprise. At Lululemon Athletica, LULU 1.34 % standard free shipping is quoted as two to seven business days, yet StellaService found 90% of its deliveries were within three days last year, up from 42% in 2013. “Retailers never want to disappoint,” Mr. Hills says. Yet retailers who underpromise on delivery time risk that shoppers will abandon their online carts if they think they will have to wait too long, he says.
Shadi Afshar, who lives in New York, watches for the email that says her online order has been processed. “I want to know that it is officially on its way,” says the 36-year-old, who heads marketing for a tea company. If the email comes within a day, she is “very satisfied,” she says. Any longer and “I get impatient with it.”
To speed up their delivery times, retailers are putting product closer to customers. Some of the biggest companies have a distribution center within a 10-hour drive of anyone in the country, says Steve Osburn, a director at management-consulting firm Kurt Salmon.
Yet shipping from a store might require a company to pay an employee twice—once to put the sweater on the store shelf, and again to pull it off, pack it up and hand it over to the carrier, says Rod Sides, who leads the U.S. retail and distribution practice at Deloitte.
“There are a lot of inefficiencies,” says Marc Lore, chief executive and co-founder of Jet.com, an online marketplace that launched last year. Jet.com ships both from its own warehouses and from direct-from-supplier facilities. Consumable products that are easy to stock in several locations, like paper towels, are delivered in two days. Clothing and shoes, which come in multiple colors and sizes, could take up to five days.
This year, Jet.com plans to display several prices for an item, including the best price available without regard to delivery speed, and the price if the item is delivered quickly. “We’ll show you what the cost is to both speed up and slow down the shipment,” Mr. Lore says.