For the time being, brick-and-mortar retailers don’t seem to have to worry too much about two of the most hyped, potentially “game changing” options in e-commerce.
You’ve probably heard that Amazon may take over the world—at least the retail world, that is. Just last week, Amazon boasted year-over-year sales growth of 30% for the fourth quarter, boosting the company’s stock price to a 52-week high. It’s become standard practice for Amazon’s sales to increase at double the overall rate of e-retail spending in the fourth quarter, and the world’s largest e-retailer did just that again in 2012.
You may have also heard that Amazon could “kill local retail” by offering same-day shipping on orders ranging from diapers to Blu-ray players to groceries for the week. Same-day shipping from Amazon is already an option in many U.S. cities, and the company’s online grocery-delivery service, AmazonFresh, has been available in select locations since 2007.
Do such convenient, near instant-gratification services from Amazon and other retailers represent the future of e-commerce? Or have we underestimated how difficult and costly such services are for retailers, while also overestimating the degree to which consumers will embrace them?
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The future of online grocery shopping is far from certain. The Seattle Times recently reported that Amazon seems poised to expand its grocery-delivery services around the country, and yet there are major hurdles holding the concept back:
Analysts say Amazon has yet to crack the code on how to deliver mass-market groceries at prices that enable it to both compete for customers and turn a profit. What’s more, they say, Amazon must convince customers to put aside their misgivings about buying perishable food sight unseen.
“If you order a loaf of French bread online, you don’t get to give it that little squeeze before throwing it into your shopping cart,” said Melissa Abbott, senior director of culinary insights at the market-research firm Hartman Group in Bellevue.
There are also concerns that food may be damaged in the delivery process, leading some to think that grocery store pickup has a brighter future than groceries ordered and delivered. The pickup model, in which shoppers place their orders online and later retrieve them, leaves open the possibility of physical stores playing a necessary role in transactions. It also leaves open the possibility of shoppers taking strolls through the store aisles and being tempted into making those impulsive in-person purchases that are so important for retailer revenues.
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The business equation for same-day delivery services of goods other than groceries also has its share of problems. Thus far, the same-day delivery experiments offered by eBay, Amazon, and others appear to be money losers. Consumers don’t seem all that willing to pay much, if anything, for same-day delivery—not when free shipping is so readily available, and not when we’ve all grown accustomed to swinging by a physical store when there’s something truly needed in a hurry.
The trade publication Internet Retailer reported that not a single customer opted for same-day delivery when the outdoors gear specialist Moosejaw.com offered the service in Chicago and the Denver-Boulder areas during the recent holiday shopping period. Even when the need for the merchandise is question is more pressing than, say, a new set of snowshoes, it’s an uphill battle for e-retailers to convince consumers that same-day shipping is a better alternative to going to the store. As Fiona Davis, chief strategy officer for the two-day shipping membership service ShopRunner, told Internet Retailer:
“It’s a market need issue,” Dias says. “If I desperately want something today, I can go to a store and not have to pay for shipping. A classic case is diapers—a product that you need there and then. As long as same-day shipping costs something, it’s going to limit the number of people willing to pay for that much speed, especially if there’s a free alternative called driving to the store.”