Post office tests same-day delivery
WASHINGTON — Emboldened by rapid growth in e-commerce shipping, the cash-strapped US Postal Service is moving aggressively this holiday season to start a premium service for the Internet shopper seeking the instant gratification of a store purchase: same-day package delivery.
Teaming with major retailers, the post office will begin the expedited service in San Francisco on Dec. 12 at a price similar to its competitors. If it goes well, the program will expand next year to other big cities such as Boston, Chicago, and New York. It follows similar efforts by eBay, Amazon.com, and most recently Wal-Mart Stores Inc., which charges a $10 flat rate for same-day delivery.
The delivery program, called Metro Post, seeks to build on the post office’s double-digit growth in package volume to help offset steady declines in first-class and standard mail. Operating as a limited experiment for the next year, it is projected to generate between $10 million and $50 million in new revenue from deliveries in San Francisco alone, according to postal regulatory filings, or up to $500 million, if expanded to 10 cities.
The filings do not reveal the mail agency’s anticipated expenses to implement same-day service, which can only work profitably if retailers have enough merchandise in stores and warehouses to be quickly delivered to nearby residences in a dense urban area. The projected $500 million in potential revenue, even if fully realized, would represent just a fraction of the record $15.9 billion annual loss that the Postal Service reported last week.
But while start-ups in the late 1990s such as Kozmo.com notably failed after promising instant delivery, the Postal Service’s vast network serving every US home could put it in a good position to be viable in the long term. The retail market has been rapidly shifting to Internet shopping, especially among younger adults, and more people are moving from the suburbs to cities, where driving to a store can be less convenient.
Postal officials cast the new offering as ‘‘exciting’’ and potentially ‘‘revolutionary.’’ Analysts are apt to agree at least in part, if kinks can be worked out.
‘‘There is definitely consumer demand for same-day delivery, at the right price,’’ said Matt Nemer, a senior analyst at Wells Fargo Securities in San Francisco. ‘‘The culture in retail traditionally has been to get a customer into the store, with the immediacy of enjoying a purchase being the main draw. So same-day delivery could be huge for online retailers. The question is whether the economics can work.’’
He and others said that consumers are a fickle lot when it comes to shipping, seeking fast delivery, but also sensitive to its pricing. Many will order online and pick up merchandise at a store if it avoids shipping charges, or will agree to pay a yearly fee of $79 for a service such as Amazon Prime to get unlimited, free two-day delivery or even buy a higher-priced item if it comes with ‘‘free’’ shipping.
‘‘Customers do like same-day delivery when it gets very close to a holiday or it otherwise becomes too late to shop,’’ said Jim Corridore, analyst with S&P Capital IQ, which tracks the shipping industry. ‘‘But while the Postal Service has the ability to deliver to any address, they are not always known for their speed. To increase their speed might prove to be a much more complex offering than they’re thinking about.’’
As the Postal Service launches Metro Post and sets pricing, its target consumer will probably include busy professionals such as Victoria Kuohung, a dermatologist and mother of three young children. Kuohung for years has gone online for all her family’s needs, including facial cleansers, books, clothing, toys, diapers, and cookware.
Kuohung lives in a downtown Boston high-rise apartment with her husband, who often travels out of town for work. The couple says they would welcome having more retailers offer same-day delivery as an option. Still, at an estimated $10 price, Kuohung admits that she would likely opt to wait an extra day for delivery, unless her purchase were an electronics gadget.
‘‘I prefer not to spend my time driving in a car, fighting for parking, worrying about the kids, dealing with traffic, and battling crowds for a limited selection in stores,’’ said Kuohung, as her 1-year-old-twins and 4-year-old son squealed. ‘‘But right now Amazon delivers in two days since I’m a member of Prime, so it would have to be something I can’t get at the corner CVS or the grocery store down the street.’’
Under the plan, the Postal Service is working out agreements with at least eight and as many as 10 national retail chains for same-day delivery. The mail agency says nondisclosure pacts do not allow it to reveal the companies. But given the somewhat limited pool of large-scale retailers — they must have a physical presence in 10 or more big US cities to be a postal partner — the list is expected to include department stores, sellers of general merchandise, clothiers, perhaps a major e-commerce firm or two.
Consumers will have until 2 or 3 p.m. to place an online order with a participating retailer, clicking a box that says ‘‘same-day delivery’’ and making the payment. Postal workers then pick up the merchandise from nearby retail stores or warehouses for delivery to homes between 4 and 8 p.m. that day.