Way back in ancient times, when FedEx was still Federal Express, the document and package delivery company promoted itself with the marketing tagline, “when it absolutely positively has to be there overnight.”
That seems so quaint these days. Overnight? Too slow. Later today? Why are you dawdling? We want it now — like, right now, this minute, this instant.
Or at least we’re told we do, and, because we supposedly do, there’s an arms race consuming billions of dollars in investment and operating losses as every retailer (a term that in this instance includes restaurants and fast-food joints) feels compelled to match everyone else, lest they be left hopelessly behind and shunned by the public.
The delivery mania of 2019 is transforming business in, what else, a hurry.
Every day brings a new example, such as the announcement last week that Amazon and other retailers are taking space in a newly opened multi-level warehouse in South Seattle. Big trucks can drive to loading/unloading docks on the second story of the building, thanks to sweeping concrete ramps. Such designs are the wave of the future, we’re told. Distributors want to be even closer to customers to make same-day delivery possible, so in metropolitan areas where land is pricey, that means building up rather than out, as is typically done in places like the Kent and Puyallup valleys.
Meanwhile, retailers are trying to figure out what the future of their bricks-and-mortar stores is. Should they shrink them, making them showrooms and fulfillment centers? Should they go fully online? What do customers want? And most important, what are they willing to pay for?
Those sorts of nagging questions tend to get ignored or brushed aside in the frenetic race to add delivery services and shorten delivery times, but there’s a day of reckoning ahead as the losses mount, the hype burns away and the more faddish elements are dropped.
Not that the concept of delivery itself is a fad.
It’s been a part of American consumer life at least since the days of the milk man and the mail-order catalog (“I got some salmon from Seattle last September,” go the lyrics from the song “Wells Fargo Wagon” in Meredith Willson’s “The Music Man”).
Nor is fast delivery so novel an idea.
The appeal of overnight instead of weeks-long delivery made FedEx as a big company possible. Just-in-time delivery has long been a feature of industries like manufacturing, allowing companies to reduce the money they had tied up in inventory and the facilities to store them.
But delivery is never free, and the faster that delivery is supposed to be, the more expensive it is to provide it. Those trucks, the drivers, the fuel, the insurance, the warehouses, all the furnishings inside (forklifts, robots, shelves, conveyors), the employees to run them and someday the squadrons of drones to drop packages in your driveway, those don’t come cheap.
For now companies are swallowing much of that cost because they feel they have to, to build market share and to keep up with or ahead of the competition.
Businesses are paying in other ways. If they don’t want to run their own delivery systems, then they’ll have to split the proceeds with an outside provider. That’s already an issue in the restaurant industry, where margins are notoriously thin and costs are rising.
Then there’s the matter of lost sales.
Customers who dash into the store for a few essentials are far more likely to pick up a few more items that aren’t on their list but catch their eye than those who order off a computer or mobile-phone screen. The power of in-person browsing as a generator of additional sales is not to be discounted.
The model as currently configured is not economically sustainable.
At some point the end customer, business or consumer, will be asked to cough up more money, and then we’ll find out just how much they value both the convenience of delivery and the speed of the service. We may find that those customers like the service and will use it as long as long as someone else subsidizes it, but they don’t consider it so essential that it’s worth paying more for instead of going to the store themselves or waiting a few days for whatever they’re buying.
When the day of reckoning comes, it won’t mark the end of near instantaneous delivery.
Some businesses will have the clout or enough revenue from other business lines to make it work (Amazon and Walmart). Some will have clientele willing to pay for it. Others will figure out how to make it work; the folks in the pizza business have been delivering their product on demand for decades, so they’ve learned how to make it a viable operation.
As for the rest — anyone who was around for the dot-com boom will remember that even then there was considerable skepticism about how the financial model was supposed to work. As it turned out, it didn’t for all but a few, with major consequences.
The instant-delivery business probably won’t implode this year; the forward momentum is still too great. But the shaky economics of the business, combined with a long-promised recession that will tighten spending, might well transform the great delivery boom of 2019 into the great delivery bust of 2020.