The on-demand delivery war in retail is on.
In its quarterly earnings call Thursday, Amazon (NASDAQ: AMZN) announced it would switch to one-day shipping for Prime members, halving the time the 100 million-plus people who subscribe to the service must wait before receiving their purchases. The Seattle e-commerce giant told analysts the move would cost around $800 million but that didn’t appear to concern investors. Amazon’s stock price rose by 2.5 percent the day after it announced financial results and changes to the Prime program, while rivals Walmart (NYSE: WMT) and Target (NYSE: TGT saw their stock prices declined 2 percent and 6 percent, respectively.
According to the consulting firm Gartner, 82 percent of Amazon Prime members view free two-day shipping as the most valuable part of membership. So it makes sense that the company—facing a perhaps inevitable slowdown in its rates adding new Prime customers—would narrow that delivery time to one day, the firm reported.
Amazon’s decision brings additional urgency to an industry already grappling with the best ways to use e-commerce technologies to also provide such on-demand services to customers. FedEx (NYSE: FDX, for example, unveiled in February an early model of its autonomous delivery robot, the FedEx SameDay Bot. The shipping company has already teamed up with Lowe’s (NYSE: LOW, Target, and Walmart to deliver products from their stores using the bot. On average, more than 60 percent of these merchants’ customers lie within three miles of a store location, FedEx said.
“The most important part to aggregating demand is to make it efficient,” says Bill Thayer, co-founder and CEO of e-commerce startup Fillogic. “We’re looking at a mall like a distribution center.”
New York-based Fillogic works with existing mall operators, converting unused space in the shopping centers where customers don’t have access into logistics centers. The idea is to help traditional retailers more efficiently manage online orders that get fulfilled at a store—a so-called “click-and-mortar” model more retailers are incorporating amid competitive pressure from Amazon and others. Instead of store employees processing orders one by one, Fillogic says they can send the items to the mall’s Fillogic-staffed distribution center, which becomes a one-stop place for delivery services to retrieve them.
There’s a reason to focus on the “last mile” of delivery: It accounts for more than half of the cost of a shipment, according to a report by Business Insider. As free shipping shifts from a sweetener to a must-have that consumers expect when they shop online, retailers and shippers are the ones who have to absorb the cost.
Fillogic, which was founded last year and was part of the spring 2018 XRC accelerator cohort in New York, has zeroed in on working with mall operators and real estate investment trusts (REITs). “Mall owners, retailers, and parcel carriers don’t work as an integrated network,” says Thayer, who spent 25 years in retail, including as COO of now-defunct Loehmann’s department store. “They need to find a way to connect the clicks to the bricks. That’s where Fillogic comes in.”
The way retail operations are currently set up, managers of stores or malls do not have the staff or expertise to supervise the logistics needs required to process online ordering and sorting packages that need to be delivered or ready for in-store pickup. In its mall hubs, Fillogic’s software can sort packages by carrier and zip code, Thayer says, reducing carrier transportation costs by more than 10 percent.
Fillogic has raised about $500,000 in outside investment, Thayer says. The company is considering soliciting a seed round of funding. “We’re gaining traction with mall owners,” says co-founder and CEO Rob Caucci. “We want to have eight Fillogic hubs this year.”
In the meantime, at least one brick-and-mortar retailer seemed to suggest more delivery options might be forthcoming. “One-day free shipping … without a membership fee,” Walmart tweeted last week in response to Amazon’s announcement. “Now THAT would be groundbreaking. Stay tuned.”