Same-day delivery: Ready for takeoff

A “new normal” has emerged for the delivery speeds that customers expect when they order online. The standard has been reset by the likes of Amazon and several other market leaders, which are placing increasingly strong pressure on incumbent players to respond. We conducted a broad effort to take stock of the current situation, focusing on Europe and, particularly, on Germany—from both a market and a consumer perspective.

Our analyses show that although the pressure on incumbents may seem overwhelming, retailers can leverage a strategic asset: their dense store networks, which give them proximity and (potentially) quick access to their customers. But to benefit fully from such networks, omnichannel retailers must consider changing gears in four areas: local fulfillment networks, quick and integrated IT systems, new store layouts and processes, and rethought business economics. This infographic offers a brief overview of our findings.

Prepping for same-day delivery

In the past 20 years, few success stories have matched that of e-commerce. As online sales have surged, shipping times have gone down (Exhibit 1).

As Amazon’s free-delivery window has shrunk, online sales have increased.

Today, people expect to receive their parcels no later than the day after they order, and shopping decisions increasingly depend on shipping times (Exhibit 2).

Knowing—before the purchase—that a delivery will be timely is increasingly important to online shoppers.

Mass-market consumers have high expectations. Especially in the United States, more than half say they have a general interest in same-day delivery—despite their limited willingness to pay extra for it (Exhibit 3).

Acceptance of higher fees for faster delivery varies by country.

Young, urban, and time-constrained consumers—the most attractive segment—expect same-day deliveries (Exhibit 4).

Retailers can focus their efforts on urban customers who are more willing to pay for same-day delivery.

To meet the expectations of this important consumer segment, the e-commerce supergiants Alibaba, Amazon, and are committed to pushing same-day delivery into the mass market now (Exhibit 5).

Top e-commerce companies have made mass-market same-day delivery a priority.

This is the next building block in their bid to win consumers on selection, price, and convenience (Exhibit 6).

Leading e-commerce players aim to win on selection, price, and convenience.

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Retail stores: The return of a key strategic asset

The one central requirement for same-day delivery is simple yet challenging: a dense network of warehouses. In Germany, for example, 11 well-placed warehouses that stock the same assortment—and can move it from click to ship in no more than two hours—would be needed to cover all tier-1 and tier-2 cities (Exhibit 7).

Developing a dense network of warehouses to enable same-day delivery can be a challenge.

Amazon actually has such a dense delivery network, which puts the industry leader’s same-day offering far ahead of those from almost all other major Western retailers. For them to catch up, the obvious option would be to invest hundreds of millions of euros or dollars to match Amazon’s footprint one to one (Exhibit 8).

The average large retailer, with limited city coverage, has only tiptoed into the same-day opportunity.

But retailers have a much better and cheaper option for today’s fast-growing but still moderate market volumes: shifting the rules of the game by using existing store networks for same-day shipping (Exhibit 9).

Omnichannel retailers can leverage their existing store networks to make same-day shipping more available quickly.

In Germany, a retailer would need 30 stores to serve almost half the population with same-day delivery and come close to matching Amazon’s current service offer (Exhibit 10).

Connecting existing stores can extend a retailer’s reach.

This strategy—using existing stores rather than new warehouses—could be the entry gate for aspiring retailers.

Innovation road map: Four areas for shifting gears

Omnichannel retailers that follow this strategy must upgrade not only their fulfillment but also their store designs and IT systems—and adopt a fundamentally different mind-set for their economics (Exhibit 11).

To succeed, omnichannel retailers must shift gears in four main areas.

Entering the race for same-day deliveries can be hard. Initially, most retailers would fall far short of the volumes required for at-scale operations, and their delivery bills would be more than three times higher than they are under the current next-day standard (Exhibit 12).

Initially, same-day shipping can not only suffer from insufficient volumes but also raise costs.

Subscription models can cross-finance shipping costs but require a high degree of customer relevance and broad benefits. Retailers that adopt the same-day standard must explore a number of paths to cash in on their convenience leadership (Exhibit 13).

Membership fees can help offset shipping costs, but retailers may need to pursue other paths to realize profits.
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