A lot has changed in the six years since Daphne Carmeli launched her company, Deliv, a last-mile, same-day-delivery startup that aims to help retailers “out-Amazon Amazon,” the CEO told attendees at Inturn’s Working Capital Summit on Thursday.
Back then Amazon had a distribution center 20 miles from 5 percent of the population. Now, including Whole Foods stores, it has DCs within 10 miles of 80 percent of the population—and 95 percent of Prime members.
In those early days of talking with prospective retail clients about the benefits of same-day delivery, Carmeli said that many companies were interested—but fretted that they “really want [shoppers] coming into our stores because there’s this thing called attachment value” that compels customers planning to spend $1, for example, to leave having actually spent $1.40. Those spur-of-the-moment unplanned purchases driving incremental lift have been helping retailers pay the bills for decades.
Carmeli, however, encouraged these prospective clients to think differently.
“You’re fighting for the buy button,” she said. Consumers value convenience and choice—giving them options can influence their buying behavior for the better.
“The world of same-day delivery has really been exploding,” Carmeli explained. Estimates project that $4 billion of gross merchandise volume will flow through the last mile of same-day delivery this year. “Much of that has to do with our friends in the Pacific Northwest, Amazon, [which] almost singlehandedly has changed the dynamics and expectations of fulfillment and made same-day delivery the standard,” Carmeli added.
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While some startups in fulfillment and logistics focus their efforts on on-demand, Deliv believes that providing a consistent and quick experience resonates with consumers. “When it comes to packaged delivery, particularly in retail, the real value proposition that we learned over time is that predictability trumps speed,” Carmeli said. “Avoiding that dreaded yellow sticky on your door tends to be a huge value [over] getting something in 20 minutes.”
Because last-mile delivery tends to be part of a broader omnichannel strategy, Carmeli said retailers face the tall order of ensuring their omni approach is executed within e-commerce, store operations, transportation and every business area involved in the commerce-anywhere process. “Part of the operational transformation that needs to happen is inventory accuracy becomes that much more important,” she said.
What’s more, how the same-day product offering is priced can help retailers reconsider the value proposition. “We’ve all become used to the faster it is, the more expensive it is. Ground shipping costs less than two-day, which costs less than overnight,” Carmeli explained. “Should same-day be premium? Or should it turn everything upside down and now the fastest is actually the least expensive? That changes the thought process.”
Many of the retailers using Deliv’s services focus on KPIs including conversion rates, basket size and repeat transactions. Offering same-day delivery for free is a pretty common approach for merchants deploying the service for the first time, and typically creates an expected bump in sales and conversion. But Carmeli said a number of retailers experience a halo effect even after the promo goes away and customers have to absorb the same-day fee. “Sometimes the consumer values choice—just having the choice for same-day delivery even if they have to pay for it,” Carmeli added.
Another expected benefit? Carmeli said there’s anecdotal evidence that same-day delivery is driving a “material reduction in returns,” thanks in part to the psychological factor. “If you’re going to wait two, three days for something versus you’re going to get it two hours, the chances of you changing your mind or going elsewhere go down,” she explained. In verticals such as apparel where return rates are astronomical, even a basis-point improvement can make a meaningful difference.
Startups like Deliv are muscling in on the logistics turf largely because the establishment—UPS, FedEx and DHL—relies on the hub-and-spoke model, which was never designed for the flexibility needed in same-day services. Carmeli said she was surprised when UPS chief commercial officer Alan Gershenhorn said the delivery giant wanted to partner with Deliv—and then invested in the startup. This was a curious move, she said, given that UPS has publicly said that “no one needed same-day” or would pay for it. Gershenhorn told her UPS had to take that stance because it didn’t have its own solution to same-day delivery, Carmeli recounted.
“If you don’t have it, you say you don’t need it,” she said.