Macy's to expand same-day delivery to new U.S. markets, challenging Amazon

Beijing Media

22/07/2015 12:00

By Nandita Bose and Mari Saito 
    CHICAGO/SAN FRANCISCO, July 22 (Reuters) - Macy's Inc  M.N  
is expanding same-day delivery to several new U.S. markets this 
summer, one of the most aggressive pushes by a brick-and-mortar 
retailer in an area dominated by e-commerce giant Amazon 
 AMZN.O , according to a Macy's official. 
    Macy's, the nation's largest department store chain, already 
offers same-day delivery services in eight markets. By 
partnering with Deliv, an Uber-like startup that uses a fleet of 
contract drivers to pick up online orders from stores and malls, 
 the retailer has found a cost-effective way to expand, said the 
Macy's official, who spoke on condition of anonymity.   
    The official said that the initial plan is to offer the 
service in several more markets but there nay be additions later 
this year, and that could take it ahead of Amazon - which 
currently offers same-day delivery in 14 markets. Currently, 
Macy's is offering the service in Houston, San Francisco, San 
Jose, Seattle, Washington D.C., Chicago, Los Angeles and New 
Jersey. It couldn't be immediately ascertained which ones were 
being added. 
    The department store company's efforts come as the "last 
mile" - the final portion of a package's journey that takes it 
from a retailer's warehouse or store to the customer's front 
door - becomes the next battleground for retailers trying to 
increase online sales. Macy's has one possible advantage over 
Amazon in that it has 886 stores as of May 2 in the U.S. from 
which to source products for delivery - meaning the packages 
often have less distance to travel - against 50 fulfilment 
centers and smaller distribution facilities run by Amazon. 
    But fast shipping is costly and most retailers who offer it 
currently lose money on the service, warn logistics experts. For 
example, analysts estimate that Amazon loses $1 billion to $2 
billion a year on its U.S. Prime service, which promises 
delivery within anything from one hour to two days. Amazon's net 
shipping cost rose to $4.2 billion in 2014, up from $3.5 billion 
a year earlier.  
    Macy's spokesman Jim Sluzewski confirmed the retailer's 
plans to expand the service this year but declined to give 
further details. 
    Faster delivery also becomes a differentiating factor when 
new online retail sites like Jet.com, which launched on Tuesday, 
 promise to offer cheaper prices than Amazon. The startup, which 
will charge $49 a year for membership, claims its consumers can 
get the lowest price on anything they buy online, with the 
trade-off of being relatively slow delivery service. 
         
    "RACE TO THE BOTTOM"  
    Even as Macy's rushes to extend fast delivery, many other 
traditional retailers are far more cautious. The costs of 
same-day delivery and ambivalence from many customers remain 
concerns, analysts say. 
    Nordstrom Inc  JWN.N  has offered same-day delivery for $15 
since 2011, but the service is still only available in three 
markets: Seattle and Bellevue in Washington state, and La Jolla 
in California. 
    A January survey of 5,118 online shoppers by UPS and 
Comscore found that 85 percent of people surveyed were willing 
to wait five days or more for their delivery.     
    "The thing that's so perplexing about this last mile and 
same day is that the consumers overwhelmingly prefer free 
shipping over speed," said Satish Jindel, a logistics consultant 
and president of SJ Consulting Group.  
    That could change, said David Bell, a professor of marketing 
at the University of Pennsylvania's Wharton School, and if 
consumers became accustomed to same-day service, the result 
would be an expensive "race to the bottom for retailers" who 
would not be able to compete with Amazon on the delivery cost.  
    Macy's does not disclose how many items it has available for 
same-day delivery, and Deliv will not say how many items it 
carries for Macy's.  
    Amazon has more than a million products available for 
same-day delivery. 
    Macy's charges its customers $5 for same-day delivery, but 
it is unclear how much of its costs that covers. Deliv says its 
rates for retailers are in line with the average $8 ground 
delivery cost of carriers such as UPS and FedEx, but it was 
unclear whether that's what it charges Macy's or whether it 
takes a loss to offer the service to Macy's. 
    "It's very hard to compete with Amazon, but traditional 
retailers have an advantage in that they already have all of 
their inventory in place five miles from 90 percent of their 
purchasing population at their stores," said Deliv CEO Daphne 
Carmeli. 
    "This is one of those opportunities to out-Amazon Amazon," 
she said. 
    Although Macy's does not break out details of its online 
sales or shipping costs, analysts assume the company is losing 
money on the service once additional costs are taken into 
account, including finding the product, getting the package 
ready for delivery, and restocking expenses. 
    "Only the biggest of retailers that are capable will be able 
to afford these operations," said Jarrett Streebin, the CEO of 
EasyPost, a shipping startup. He estimated costs per package 
could reach $20 or more with additional logistics processes and 
staffing to handle the orders. "Who's willing to pay the bill?" 
he asked. 
 
 (Editing by Stephen R. Trousdale, Peter Henderson and Martin 
Howell) 
 ((Mari.Saito@thomsonreuters.com; 81-3-6441-1934; Reuters 
Messaging: mari.saito.thomsonreuters.com@reuters.net)) 
 
Keywords: MACYS DELIVERY/