Target experiments with same-day delivery

In the not-so-distant past, same-day delivery might have been something Target introduced only after it smoothed out all the kinks, especially amid questions about the consumer's appetite for it.

But the Minneapolis-based retailer is on a mission these days to take bigger risks, so it is jumping into the same-day delivery fray along with a growing number of competitors.

Target is rolling out a new "rush delivery" service in three major markets — the Twin Cities, Miami and Boston. For a $10 fee, orders placed at Target.com by 1:30 p.m. will be delivered to people's homes via a courier service that same evening between 6 and 9 p.m.

About 30,000 items, or about a third of an average Target store, will be available for rush delivery. The company began a soft launch this week and will have the service at full speed by Tuesday.

"I certainly think same-day delivery is part of the future — the open question is how big," said Jason Goldberger, senior vice president of Target.com and mobile. "My hope is that it will be very successful, and we'll then want to expand it to more markets."

Retailers are still trying to make same-day services cost-effective. One of the biggest challenges, Goldberger said, is anticipating customer demand. "Is it a handful of orders of guests per day or hundreds of orders per day?"

After some failed experiments with same-day delivery in the early 2000s, more retailers are trying again. Amazon.com, the e-commerce giant, began rolling out same-day delivery to some markets in 2009 and has since expanded it. It is also reportedly testing using its own fleet of trucks to make deliveries.

Brick-and-mortar retailers have taken notice.

"If you're a retailer and your product competes with Amazon, you better be testing a lot of things," said Brian Yarbrough, an analyst with Edward Jones. "The test may fail and they may decide not to go forward with it, but they can't just sit still."

Walmart launched a same-day delivery service called "To Go" in five markets, including Minneapolis, in 2012. Google and eBay have been testing their own courier services in partnership with retailers in a handful of cities on the coasts. A host of start-ups have begun to make inroads, too.

But many of these services are still in the beta phase, and there have already been challenges. A Walmart spokesman confirmed that its same-day service has been temporarily suspended in Minneapolis. After rumors circulated earlier this week that eBay was shutting down its eBay Now service, the company said it is sticking with the program in four cities but won't expand as originally planned.

While the public may not be clamoring for same-day delivery, retailers want to be prepared as expectations begin to change. "We want to be ahead of the curve," Target's Goldberger said.

Matt Nemer, an analyst with Wells Fargo Securities, said same-day delivery introduces a new paradigm to retail.

"I think this is something that consumers don't know they want yet, but will — much like a tablet," he said.

Earlier this year, Best Buy turned all of its stores into shipping centers. By doing so, CEO Hubert Joly said the company is better positioned to not only speed up delivery, but also roll out services such as next-day and same-day delivery.

"The next generation wants it now," Joly said in a recent interview. "Even from an Internet player, two-day delivery is not now. Now is now."

Nearly half of Best Buy's online orders use its buy-online, pick-up-in-store service.

While the Richfield-based retailer hasn't announced any official plans for same-day delivery, it is doing some "modest and humble" testing, Joly said.

"You can imagine a day where at scale, Best Buy would be like a pizza business where we'll just get it to you," he said.

But the difficulties delivering on same-day promises have been evident. In Minneapolis, when customers go to Walmart's To Go website, all of the delivery windows show up as being full. A company spokesman confirmed the service has been disabled.

"We have suspended delivery temporarily while we're doing some technical work in the Minneapolis market," said Ravi Jariwala. He noted that Walmart has expanded the number of items eligible for same-day delivery from 5,000 to more than 10,000.

The chain also has a Denver pilot project that delivers groceries and offers curbside pickup. Many customers indicated in surveys that they prefer the store pickup so they can grab other items they may have forgotten to order, Jariwala said. "It's really about giving customers a choice."

Anne Zybowski, an analyst with Kantar Retail, said same-day delivery may be useful around holidays and special occasions.

But otherwise, she suspects that two-day delivery will be a bigger standard for retailers to nail down. "It used to be five to eight days was standard," she said. "But Amazon has reset those expectations to two days."

When it comes to same-day delivery, some analysts think that third-party delivery services such as those offered by eBay Now and Google Shopping Express might have the best chance of success. After all, the key to making it feasible is being able to make multiple stops in one hour.

"If you're a retailer starting from scratch, the economics of one or two deliveries is probably not there," Zybowski said. "Until you get to scale, I wouldn't expect to see same-day delivery outside of densely populated areas."

Target has partnered with delivery services for Google and eBay in cities such as New York and San Francisco. Goldberger said Target has been pleased with the results. Some of the more popular items purchased through those services have been household staple items such as paper towels.

But for now, Goldberger said, Target is simply trying to better understand the market.

In the end, a combination of delivery models that take hold, said Jason Long, a retail consultant with Shift Marketing Group. "My gut is this is something they have to do — but at the end of the day, is it going to move the needle? I don't think so," Long said. "But you don't want to sit in your suite and two years later see it turned out to be something big."

Kavita Kumar • 612-673-4113