Investing in Web Retail
Same Day Delivery is Web Retail's Holy Grail
Online shopping has put a bullet in the soft guts of brick-and-mortar retail, an industry that is now in the long, slow process of bleeding out.
Same-day shipping will be the killshot. With an affordable same-day delivery service in place, an online retailer can out-convenience its brick-and-mortar competitors in all respects.
Yet Internet history hasn't looked favorably upon same-day delivery startups thanks to the precedents set by legendary dot-com failures Webvan and Kozmo. These startups exhibited great promise and confidence, but collapsed into bankruptcy as swiftly as their delivery vehicles moved.
More than a decade later, the same-day delivery stigma is finally melting away.
This week, online commerce site eBay (NASDAQ: EBAY) announced it will be acquiring Shutl, a same-day delivery marketplace based out of the UK. Shutl utilizes local courier services to speed products from retailer to consumer in as few as fifteen minutes. This acquisition highlights the escalating importance of same-day delivery options for online retailers.
Shutl, after all, only arrived in Silicon Valley last March.
Currently, Shutl is only available in New York City and Chicago, but eBay has plans to integrate the company into its own same-day delivery service. The service is known as eBay Now and is expected to toll out in 25 U.S. Cities by the end of 2014, its second full year of business.
Online retailers have been jockeying for some semblance of leadership in same-day delivery for well over two years, but it's a complex and costly field, and most services haven't made it beyond pilot deployments.
However, with eBay, Google (NASDAQ: GOOG), and Amazon (NASDAQ:AMZN) expanding their services, startups dealing in high speed logistics are prime targets for acquisition.
What They Want
The delivery question is really one of speed versus cost.
With eBay Now, speed is the key. Users pay a $5 fee to have products delivered from local stores within an hour of purchase. It eliminates the need to get in the car and go to a store, and keeps customers locked onto eBay. It's a low-profit space, but important to answering the specific needs of customers.
The other direction, taken by the likes of Amazon, is to offer shoppers free standard delivery on volume purchases, but with no major increase in speed. Amazon formerly offered free shipping on any purchase over $25, but this week increased the minimum price for free delivery from $35.
Brick-and-mortar mega-chain Wal-Mart offers its own same day delivery service called Wal-Mart To Go in Northern Virginia, Philadelphia, Minneapolis, San Francisco, San Jose, and Denver. The approach is slightly different from the ones taken from eBay, Amazon, and Google.
To Go allows customers to shop on Wal-Mart's website and have the goods delivered to their home from their nearby store. In effect, it's using Wal-Mart's famously tight supply chain to turn individual stores into local distribution centers.
You can order anything from auto parts to furniture, but Wal-Mart To Go places a stronger focus on groceries than general merchandise because of its continued encroachment on the supermarket space.
Noteworthy Delivery and Logistics Startups
While most delivery and logistics companies remain private, many could offer public players like Google, Amazon, and Ebay and edge on their competitors. Here is a list of potential acqusition targets to keep an eye on:
Postmates is a "same day urban logistics and delivery platform," which allows users to order goods in their city and have them delivered by bike messenger. Like Shutl, Postmates shoots for the less-than-one-hour timeframe. Postmates debuted in 2011, now serves New York, San Francisco, and Seattle with delivery charges beginning at $5, priced according to a time/distance/location algorithm.
Postmates puts heavy emphasis on its mobile presence and has a slick iPhone application at the center of the customer experience.
TaskRabbit is a "local outsourcing" service that lets customers assign tasks to other users. TaskRabbit tasks could be skilled labor or simple errands.
In this way, customers could hire a TaskRabbit user to buy and deliver the item they want. This is especially useful when local sales or short-term deals are available, but the user isn't. It's currently available in nine cities (Boston, New York, Chicago, Austin, San Antonio, Los Angeles, San Francisco, Portland, and Seattle.)
Exec offers a service similar to TaskRabbit, but it is not a marketplace where users bid on the right to perform a task. Instead, the tasks are delegated to Exec employees based upon their proximity and their general ability to complete a task. With a flat rate of $30 per hour, Exec is currently only availble in the San Francisco area.
Flirtey could be the most outlandish of the bunch. The Australian startup uses drones to fly textbooks across the outback and into the hands of customers. It sounds strange, but the reasoning behind the service is quite sound. The cost of a drone delivery is just a fraction of the cost of a delivery in a car or van.
Flirtey's Co-founder Ahmed Haider said drones offer nearly a 10x reduction in delivery cost.
But the drawbacks are many. For one thing, there is no legislation in the United States regarding commercial drones yet, although Congress demanded the FAA establish groundwork by 2015. Secondly,dones can only deliver items of a certain weight and size, presenting a massive limitation on where this solution is applicable.
Shoprunner is an $8.95 per month premium service that accelerates the shipping of web and brick-and-mortar retailers. Subscribers have two-day shipping and free returns from approximately 80 retail stores. Shoprunner absorbs whatever shipping charges the retailers might have, and in exchange charges them a commission between 3 and 5 percent.
Shoprunner claims to have more than a million paying members, but it's led by Scott Thompson, the executive who was notoriously fired from Yahoo for lying on his resume. This doesn't exactly give us confidence in Shoprunner's claims.
Currently, these companies are all private, but keep your ears open for public offerings, because they're primed for quick acquisition.
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