40% of Logistics Companies Will Offer 2-hour Delivery by 2028

by LJM Group

According to a study by Zebra, published on April 9, 2018, “78 percent of logistics companies expect to provide same-day delivery by 2023 and 40 percent anticipate delivery within a two-hour window by 2028… in addition, 87 percent of survey respondents expect to use crowdsourced delivery or a network of drivers that choose to complete a specific order by 2028.”

The logistics world is constantly changing and evolving, with speed, cost, and reliability being the core drivers. UPS and FedEx will continue to maintain a significant market share for the inevitable future, but we can expect more options to become available, through global and regional parcel carriers, couriers, crowdsourcing, and additional evolvement from the traditional brick and mortar stores.

According to the U.S. Department of Commerce, U.S. retail e-commerce sales for the fourth quarter of 2017 was $119.0 billion, while the total retail sales for the fourth quarter of 2017 were estimated at $1,304.3 billion. The graph below shows the steady growth in e-commerce sales as a percentage of total retail sales dating back to 2008.

According to Goldman Sachs’s head of consumer research Matt Fassler, “Brick and mortar retail represents about 85 cents of every retail dollar transacted… if ecommerce continues to grow at a 15 percent annual clip for the next five years, that number would still be 70 percent. The business might be getting a bit smaller in aggregate, but it’s certainly big enough to matter and will be big enough to matter for a long time.”

As the carriers continue to strive to get this volume, we’re seeing significant changes in behavior from the traditional brick and mortar.  The companies that we can expect to survive and potentially thrive are those that are evolving and changing.  Investing in e-commerce and technology is a must.  Target and Walmart, in particular, are actively investing in technology and resources to maintain a competitive edge.  In addition to the obvious brand awareness, the benefits that these organizations have is their footprint.  Not only do they have strategically positioned distribution centers, but also stores that are positioned to serve nearly every US household.

Walmart is adding 500 to 700 pick-up towers to its stores this year (initially introduced in 2016). With the expansion, pickup towers will be available to nearly 40% of the US population, Walmart said.  To use the tower, customers scan a barcode located on their purchase receipt, and within 45 seconds, a door on the machine opens and the items appear on a conveyer belt.  This enables Walmart to entice the customer to come into the store, often leading to the lucrative additional impulse buy.  By placing it near the entrance, however, they are offering the convenience that shoppers continue to seek.  For groceries, Walmart is testing larger machines with internal freezers and refrigerators.

To compete directly with Amazon, continues to offer free shipping for orders of more than $35.

According to Phil Wahba of Fortune “Much like Walmart, Target sees its fleet of stores—the vast majority of Americans live within 10 miles of a Target—as a key advantage over Amazon, even as that company starts to use its Whole Foods Market stores to narrow that gap.

Some 50% of Target’s online orders during the holiday quarter were filled by a store and operations chief John Mulligan told analysts that shipping from a store was much cheaper than from a dedicated fulfillment center and that it was cost efficient to retool parts of the stores, with a big ramp up during the holidays, compared to open large new centers.”  Target has also added 2-day delivery for orders of $35 or for those paying with a Target Card.  It plans to fully integrate the stores with its e-commerce platform.

Earlier this year, word spread of Amazon’s plans to expand into the small parcel universe currently occupied primarily by UPS and FedEx.  The two dominant carriers publicly expressed doubts of any imminent threat to their market share.

It’s unlikely that either FedEx or UPS were caught unaware by Amazon’s test program to pick up e-commerce shipments from its sellers in the Los Angeles market, first reported by the Wall Street Journal, as news has been leaking about Amazon’s ambitions in the logistics industry ever since 2016.  At the time Amazon insisted that its initiatives, ranging from aircraft leases to a last-mile delivery service with their own fleet of trucks, were internal improvements meant to complement, not compete, with existing carriers. Now, with the announcement of the Seattle giant’s Shipping With Amazon (SWA) brand, Amazon has stated their intention to compete with FedEx and UPS.

Analysts have estimated that to catch up with the current duopoly, Amazon will need to spend “tens of billions” of dollars, but with 13.2 billion dollars already invested in warehouses and other logistical enterprises in 2017 compared to 5-6 billion in capital spending from UPS and FedEx each according to Bloomberg, Jeff Bezos has proven that his company can’t be considered longshots in becoming a major player in whichever industry the tech titan sets his eyes on next.

One key advantage Amazon would have over its two older would-be competitors is its expertise in technology.  The future of parcel lies in artificial intelligence, and experts have speculated that Amazon’s move into logistics could be an indication of their driverless delivery car technology, an area of development that FedEx and UPS are sure to be actively engaging in as well.  Amazon’s drivers in New York City even use the subway to meet the demands of the Prime Now service, which is a commitment to meet delivery times in as little as an hour.

According to Fung Global Retail & Technology, a retail think tank, there were 6,700 store closings in 2017.  The previous high was 6,163 store closings, which hit in 2008 amid the financial meltdown, according to Credit Suisse.  Walgreens was responsible for approximately 600 locations, as a result of purchasing 1,932 Rite-Aid stores, of which some were close to Walgreens locations.  Other chains that announced a large number of store closings in 2017 include Kmart, Sears, JC Penney, Ann Taylor, Gap, Banana Republic, Gymboree, Teavana, Michael Kors, The Limited, and Staples.  As many as 8,600 more brick and mortar stores are expected to close in 2018, according to Credit Suisse.

What’s certain is that it’s “game-on” in retail, with those that are proactively testing and changing being able to survive, while those that are reactive being left by the wayside.

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