Same-Day Delivery Cheaper Than Next-Day or Two-Day Delivery? That Doesn’t Sound Right!

By Thomas O'Connor | February 01, 2022 | 0 Comments

Supply ChainPower of the Profession

Historically, the faster the delivery service, the more a customer had to pay. And yet a same-day delivery offering that is cheaper than two-day delivery and less than half (!) the cost of next-day shipping is the reality of what a select few leading retailers such as Levi’s and Abercrombie & Fitch have on offer for U.S. consumers.

Screenshots of shipping options available for U.S. consumers from retailers Levi’s and Abercrombie & Fitch
Screenshots taken from: https://www.levi.com/US/en_US/info/shipping https://www.abercrombie.com/shop/us/help/shipping-handling

 

To understand the shift, we first need to recognize that according to a recent Gartner analysis of the fulfillment offerings of 50 fashion, apparel and footwear retailers in the United States, only 8% of retailers offer a same-day delivery service. This is because most retailers fulfill their online deliveries through a centralized model where orders are shipped from either a single fulfillment center or a select few fulfillment centers. This means that in the United States, parcels from retailers often need to travel many hundreds or thousands of miles to reach the end consumer. Further, traditional carrier networks, such as those operated by FedEx and UPS, are designed to service such large geographies, they simply aren’t designed to provide same-day delivery. Expedited delivery services across these large distances are more costly than their slower, non-expedited services.

So what is changing the paradigm when it comes to same-day delivery?

Target, the trailblazing mass merchant, was one of the first retailers to recognize the opportunity that a more decentralized fulfillment-from-store model could provide in terms of last-mile cost efficiency. In 2017, they announced a strategic shift towards fulfillment from store and within two years had moved from 30% to more than 75% of online orders fulfilled from their store network. The benefits of the model were highlighted by Target CEO Brian Cornell who discussed in a 2019 earnings call with investors how: “As we [Target] move digital fulfillment from upstream DCs to stores, we see a significant reduction in expense and we talked about a 40% reduction. When we go from an upstream DC to some of our same-day fulfillment offerings, like Order Pickup and Drive Up, we see a 90% reduction in costs.”

At the time of this statement many retailers were skeptical of the scale of cost reduction achieved by Target through its fulfillment from store model. Specifically, many retailers questioned the cost benefits of picking and packing items in a store environment versus a fulfillment center while not seeing clear benefit in shifting away from their national carrier partners.

However, as with so many other things, the pandemic has changed the paradigm.

To ensure inventory did not sit idle during pandemic-related store closures, many retailers invested to develop, accelerate or advance their capability to fulfill online orders from store. Most used this capability to support buy online pickup in store (BOPIS, also known as click and collect) or curbside pickup with a smaller proportion enabling ship from store capabilities.

Where online delivery orders are “local” to a fulfilling store location — e.g. within 5, 10 or perhaps 20 miles — same-day parcel delivery may be possible through small, specialized delivery partners specific to a region or larger, crowdsourced delivery providers operating across multiple regions. And these same-day delivery partners typically provide services that are cheaper than the overnight or two-day delivery offerings from the national carriers. This means, at least in terms of transportation, same-day delivery is cheaper than the next- or two-day delivery services enabled through national carriers and shipped out of centralized fulfillment centers.

So, if you’re a retailer already fulfilling orders from store, is now the time to consider offering a same-day, ship-from-store delivery service too?

Thomas O’Connor
Senior Director Analyst
Gartner Supply Chain
Thomas.OConnor@gartner.com

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