While this may be a contrarian opinion these days, I actually do believe that brick-and-mortar retail chains have significant and achievable advantages over (primarily) online competitors like Amazon, Wayfair and Asos. My reasoning is this: The retail store has a legitimate opportunity to capture lasting competitive advantage against their online competitors by seizing the day. Literally, this day. As in, same-day delivery.
It’s been well documented how the online power players struggle to get orders delivered to shoppers outside of big cities the same day orders are placed. Without a local presence, getting stuff delivered quickly to the spread-out suburbs is both challenging and expensive. Even the 800-pound gorilla that is Amazon only offers same-day delivery for a fraction of their assortment, to a fraction of the places they serve.
No shortage of challenges getting to the ’burbs
To understand the challenges Amazon faces, one need only look to last year’s announced opening of four “mini-fulfillment centers” built to improve same-day delivery to residents of four large U.S. cities: Dallas, Orlando, Philadelphia and Phoenix. While exact construction costs for these facilities have not been released, The Wall Street Journal reports that Amazon spends close to $260 per square foot, including land, when adding new fulfillment centers built for speed. At about 100,000 square feet, then, we can estimate based on the Journal’s reporting that each of these four facilities cost somewhere in the neighborhood of $26M USD just to pop them up, not including the costs to staff, maintain, heat, cool and equip them. If our assumptions are close, that’s about $104M USD spent to build four new fulfillment centers.
The good news for Amazon, of course, is that their $104M bought them the ability to expand their highly desired same-day delivery offerings. But there’s a catch: All that money bought them expanded offerings to just four cities. Notice that I specifically said “cities.” Not “metropolitan areas,” and hence not most of the hundreds of suburbs surrounding those cities, where millions more consumers live without access to Amazon’s same-day delivery options (despite the $104M investment).
Oh, and here’s another catch: That $104M USD reportedly only bought Amazon the ability to offer about 100,000 items to those four cities. If the reports are accurate, then only about 0.83% of the roughly 12 million items sold by Amazon are now eligible for expedited same-day delivery. And that doesn’t include the ~300 million other items sold through the Amazon Marketplace that are not available for expedited same-day delivery to those four cities. At least not from those four new fulfillment centers.
Even Amazon has their limits
So, if Amazon wants to carry the day, they simply need to build more distribution centers, right? And compared to a $5.5B space flight, new distribution centers are a bargain. But they’re still not cheap, by any means. Retail advisory firm CBRE estimates that every additional $1B in eCommerce sales requires 1.25 million additional square feet of warehouse space. If this reporting and my math are close to correct, then every additional billion dollars in revenue will cost Amazon approximately $325M in land and DC construction costs alone.
I’d say those costs are a serious barrier to entry. Not to mention the day-to-day logistical challenges warehouses face when fulfilling same-day delivery orders. A recent study reported that three-fourths of warehouses (77%) named fulfilling same-day orders their single greatest challenge.
Therein, of course, lies the opportunity. The reality is, shoppers increasingly expect more of those same-day delivery options that are so expensive and challenging for warehouse-based fulfillment networks. McKinsey reports that 30% of global consumers now expect to have same-day delivery options when shopping, and through the first four months of 2021, same-day delivery orders from brick-and-mortar stores rose 86% over the same period in 2020. Further, according to PwC, fully 41% of global consumers surveyed indicate they would be willing to pay a premium for same-day delivery.
Clearly, shoppers around the world are looking for their retailers to get them their orders quickly. And clearly, online warehouses will struggle to fulfill those expectations.
Suburban stores are poised to pounce
Amid all this competitive opportunity, the store is well-positioned to save the day. Suburban stores are often located close to lots of those suburban consumers. Suburban stores also have inventory on hand (in fact, too often they have excess inventory on hand). Suburban stores also have associates available to support the process, most of whom have become adept at picking and packing items for pick-up-in-store and ship-from-store orders.
And there are lots of third-party delivery options available to help get the orders that last mile to the customer’s door, and often at a very reasonable price. Gopuff, for example, now offers 30-minute delivery of a wide range of products to 650 U.S. cities, for a flat $1.95 delivery fee. And they’re reportedly eyeing expansion into Europe as we speak. But if a startup isn’t to your liking, there are plenty of established partners available to help your stores win the day, including Instacart, Deliveroo, Postmates, Uber, FedEx and DHL, to name but a few.
Getting it right is critical
I know it can be easy to get caught up in the fervor of all this opportunity, but it’s important to remember that earning lasting advantage requires solid, consistent and repeatable execution. And when it comes to same-day delivery, there are several aspects of the process that we simply have to get right if we are to keep customers coming back to the brand. Here are four tactics that I have seen work well for our customers:
It’s obvious to me that there are real opportunities for retailers to earn lasting advantage through same-day delivery from their stores, but only if they formulate a plan, effectively execute the process and … seize the day.
And if they were to do so, that would certainly make my day.