Same-day delivery, one of the hottest e-commerce trends, is too expensive for most U.S. consumers, raising the risk that this could become another online shopping fad that goes cold, according to a survey released on Tuesday.
The Boston Consulting Group recently asked 1,500 U.S. consumers what would get them to shop more online and only 9 percent cited same-day delivery. Almost three-quarters of respondents said free delivery would do the trick, while half of those surveyed said lower prices.
Consumers said they would pay $7.50, on average, to get a $50 online purchase delivered on the same day, the survey found. That is lower than the fees charged by most retailers and e-commerce companies now providing these services, the consulting firm noted.
Same-day delivery has become the latest retail battleground, with Wal-Mart Stores Inc, eBay Inc and several other companies chasing Amazon.com Inc, which has been offering the service on selected items in certain cities since 2009.
Google Inc is preparing to launch a competitor to Amazon's wildly popular Prime shipping subscription service and will offer same-day delivery from bricks-and-mortar stores, TechCrunch reported on Tuesday.
Shutl, a startup backed by United Parcel Service, has offered same-day delivery in the UK for three years and will be launching the service in the United States in a few weeks.
The U.S. Postal Service and FedEx Corp have each recently started same-day delivery in select U.S. areas.
But these players may find little room to make money because same-day delivery is destined to be a niche service, Boston Consulting's survey concluded.
"The demand for this service and the willingness to pay do not match the cost of providing it," said Rob Souza, a partner at The Boston Consulting Group, who worked on the survey and has advised companies on same-day delivery.
"We're pretty skeptical about the ability of a standalone business to make money from this," added Vladimir Lukic, a principal at the consulting firm, who also worked on the survey.
Urban shoppers aged 18 to 34 with household income over $150,000 a year - known as affluent millennials - are more interested in same-day delivery, but this group accounts for only 2 percent of the market, according to the consulting firm's report.
Consumers said they would only use same-day delivery in certain circumstances, like when they needed to buy a last-minute gift or could not get to a physical store, the survey found.
Retailers should only offer same-day delivery for a select number of products that are small, light and carry high margins, such as electronics, office supplies and apparel, the report said. But even for these items, consumers do not usually want to pay extra to have them shipped swiftly.
All this means same-day delivery will be a niche service that retailers offer to build customer loyalty, or keep up with rivals, Souza explained.
"It will never work by itself. It won't serve all of your customers because some won't need the speed or convenience," said Tom Allason, CEO and founder of Shutl.
"The limitations of this model are that distances have to be short," he added, noting that Shutl's service in the UK specializes in delivering online orders within 10 miles or less from physical retail stores.
Allason is betting, however, that once consumers get used to reliable same-day delivery, they will use it more and eventually come to expect it.
Shutl aims to make same-day delivery cost effective by using existing courier firms that already transport documents, medical packages and other items around cities. Shutl's e-commerce packages can be included in the existing delivery routes of these couriers, keeping costs down, Allason explained.
(Reporting by Alistair Barr; editing by Phil Berlowitz, G Crosse)