Washington, DC, July 23, 2013 --  

New innovations in retail delivery are a long time in coming.

When Mongomery Ward started its mail-order catalog business in 1872, it was a revolutionary idea. Customers picked out standard products from a catalog with fixed prices and had them delivered to your home. 120 years later, when paper catalogs gave way to websites, hardly anything else had changed. Warehouses still shipped packages by U.S. Mail, or its fundamentally similar competitors at the United Parcel Service or Federal Express.

This creaky, old-fashioned side of online retailing is finally starting to change. Propelled by intense competition, retail giants are experimenting with several new delivery models, most notably same-day delivery. Ebay's planned expansion of their pilot service to a fifth city this summer¹ puts them behind industry leader Amazon's eleven cities with same-day delivery.² Walmart and Google are getting into the game with pilot programs of their own.³

These services generally use local couriers to deliver products, bypassing their more sluggish compatriots at UPS, FedEx and the Postal Service. But stung by its default on a $5 billion bill to the U.S. Treasury last fall⁴, even the Postal Service is getting creating creative -- contracting with 1-800-flowers.com for same-day delivery services in San Francisco.⁵

The use of local couriers has been growing for years. Amazon, which doesn't disclose the shipping service to customers at the time of sale, has been known to use a combination of its own trucks and newer regional delivery services like OnTrac, LaserShip and A-1. At other times, it uses one carrier to deliver to the local post office, where it relies on the Postal Service to deliver the last leg.

In some markets, the online giant skips going to the customer's door altogether -- giving the option of package pick-up at lockers at designated 7-Eleven outlets or other retail stores.⁶ This allows Amazon to compete with the likes of Walmart and Best Buy, whose local presence makes in-store pick up an easy alternative. Not to be outdone, Walmart is considering crowdsourcing home delivery to its customers, who would get a discount on purchases in return for driving products to the doors of those making purchases online.⁷

All this creativity is welcome, but there is one nagging question -- are the experiments cost effective? While it keeps details secret, there is widespread speculation that Amazon loses money on sales to customers making heavy use of free shipping in its Amazon Prime subscription service. The same goes for same-day delivery services -- current prices charged by Ebay, Amazon, Google and Wal Mart are unlikely to cover costs. Unless self-driving delivery vehicles come more quickly than anticipated, online retailers' newfound creativity has to tackle costs if these free or low-price delivery options are going to continue.

12 years ago, same-day delivery pioneer Kosmo.com went out of business after burning through hundreds of millions of investors' money providing free delivery of items as trivial as coffee, DVDs and candy to local customers within an hour. In hindsight, it's hard to see how Kosmo.com ever thought it would be able to make its business work.

Unlike Kozmo, retail giants like Amazon, Walmart and Ebay aren't going away any time soon, even if many of their new delivery innovations fail. After over a century of stagnation, innovation on delivery is long overdue.

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Notes:

1. Reuters, EBay Expands Same-Day Delivery in Local Battle With Amazon, July 22, 2013

2. Amazon, Local Express Delivery Ordering Deadlines, as posted July 23, 2013

3. Wired, Tech Giants Want to Win Same-Day Delivery -- Even if It Never Makes Money, July 22, 2013

4. NBC News, Postal Service misses another $5 billion payment, blames Congress, October 11, 2012

5. United States Postal Service, U.S. Postal Service Inks Deal with 1-800-FLOWERS.COM for Metro Post Same Day Delivery, December 20, 2012

6. Wall Street Journal, Amazon's New Secret Weapon: Delivery Lockers, August 7, 2012

7. Reuters, Exclusive: Wal-Mart May Get Customers to Deliver Packages to Online Buyers, March 28, 2013