Online retailers are under a special kind of stress this holiday season that accompanies their ambitious promises of one-day package delivery.
Amazon and Walmart are among the retailers that have pledged to deliver consumers’ orders within a 24-hour delivery window. The coming weeks will be the first test of whether they can make good on the promise during the busy holiday shopping season, when onslaughts of orders and bad weather can derail even the best delivery systems.
It’s an expensive feat that requires not just additional planes and vehicles, but more workers and reams of data to help retailers prepare and predict what shoppers may buys.
And the stakes to deliver on time are high. A late package can damage a retailer’s reputation, since shoppers tend to blame them, even if the late arrival is the fault of the delivery company.
“The store made the promise,” said Suketu Gandhi, partner in the digital transformation practice at consulting firm A.T. Kearney.
Amazon learned that six years ago, when UPS and FedEx were crippled by bad weather and last-minute online shopping, causing millions of packages to be late for Christmas.
Since then, the online shopping giant has been building its own delivery network to give it more control over when and how its packages are delivered. It has leased jets, built package-sorting hubs at airports and launched a program that lets contractors start businesses delivering packages in vans.
Amazon has raised bar for competitors
Amazon’s competitors are under pressure to keep pace with the online retail giant — which has raised consumer expectations. When the company introduced two-day shipping about 14 years ago, shoppers expected the same from other stores. That appears to be happening again.
“Customers love two-day delivery,” said Mark Cohen, a retail studies professor at New York’s Columbia Business School. “But they like one day better.”
Smaller retailers, however, will probably be hurt trying to pay for quicker shipping, said Cohen, who used to be an executive at Sears Canada.
The push for even speedier delivery comes after Amazon announced in April that it would cut its delivery for Prime members to one day from two. Walmart and Best Buy followed with their own announcements. Many smaller retailers are also trying to deliver quicker, according to UPS, which said it will have 11 more jets flying this year to keep up.
But many eyes will be on Amazon this holiday season and whether it will make good on its even speedier delivery promises. Orders from Amazon are expected to make up 42% of all online sales this holiday season, according management consulting firm Bain & Co.
The Seattle-based company says it’s up to the challenge: “We deliver for our customers every day and are confident in our ability to serve customers this holiday season,” Amazon said in a statement.
Speedier delivery costly to companies
Amazon has another advantage over its competitors: lots of cash. It expects to spend about $1.5 billion during the holiday season, partly to move items closer to customers and pay for more worker shifts. It says the cost is worth it and that one-day delivery is already paying off in the form of more consumers pending on orders.
Amazon has more than 100 warehouses around the country to store, pack and ship goods. Walmart is using warehouses and stores near customers to pack next-day orders. Best Buy has opened warehouses near the heavily populated cities of Chicago, Los Angeles and New York. Target says more than 90% of online orders are packed at stores.
While Target doesn’t promise next-day delivery, it says that half of its two-day deliveries are showing up at customers’ doorsteps the next day. It’s also offering same-day delivery from stores for an extra fee and, like other retailers, it offers an option for customers to buy online and pick up from a store.
Shippers say they are ready for the influx of packages. UPS, which says next-day air shipments jumped 24% in the most recent quarter, has built more package sortation hubs that will help it process an additional 400,000 pieces per hour. FedEx will again be offering online retailers a way to ship next day or in two days when orders come in late afternoon or night. And the U.S. Postal Service says it will be delivering packages in more cities on Sunday, a change it typically does during the holidays.