One of the challenges in e-commerce has always been the last mile – that last bit of transportation required to get those new shoes or electronic gadget to the customer. Expensive packages need to be signed for and, indeed, in some neighborhoods it is best not to leave any box on the front stoop. Those are all inconveniences for the customer. From the firm’s perspective, the last mile is also where the costs get higher. The marginal cost of cramming one more box into a semi to get from a fulfillment center to a metro area is next to nothing but the marginal cost of one more stop on a delivery route in that metro area is not.
That’s why delivery lockers make for an appealing idea. Amazon has gotten some press for developing a network of unattended delivery locations. Here is how The Economist describes it (Delivering the goods, Aug 25).
Customers and sellers should welcome the growth of a new way to ensure that goods are delivered quickly and safely. Parcels are increasingly shipped not to home addresses but to local businesses, where they are held for pick-up. This summer Amazon, an American online-retail giant, is expanding a network of delivery lockers in local shops in some of America’s biggest cities as well as in London. A locker pops open when a customer enters an access code received by e-mail or text message. Other companies are building even bigger locker networks, especially in Europe.
Some shoppers are willing to pay to avoid home deliveries. ByBox, a British firm, charges shoppers about £2 ($3.15) to retrieve a parcel from one of its 1,350 locations around the country. Other locker networks are free. Delivery firms can save lots of money by sending a batch of parcels to a single place, where delivery is guaranteed, so they are naturally keen to provide the service. Nine out of ten Germans live or work within about ten minutes of free lockers operated by Deutsche Post DHL. The French and Turkish post offices also provide free locker services.
As the quote notes, this is not a completely novel practice. Indeed, several years ago some supermarkets here in Evanston experimented with having FedEx delivery lockers in the store. So what makes this different?
One consideration is that this Amazon. They should have the volume going into different neighborhoods so that these lockers would be used a lot. That makes life easier for the UPS driver. Further, assuming that they focus on denser neighborhoods, a limited set locations could offer a new service to a large number of customers.
There is even something in it for the site that hosts the locker. To date, many of these have gone into convenience stores. These obviously make attractive sites since they are typically open long hours (if not all day). And they also benefit by drawing additional foot traffic.
There are also some interesting questions that go with this. First, will Amazon expand the use of these lockers beyond their core business? I can see that they would not want competitors delivering to their lockers but other parts of the Amazon family (e.g., Zappos) would also benefit from this service.
Next, it is interesting to speculate on how competitors will respond. There is likely no other on-line retailer that could afford a delivery-locker arms race with Amazon. But FedEx or UPS (if the latter is not concerned with angering people in Seattle) could think of building out a set of delivery locations that function in a similar way. They could even make it worthwhile for on-line sellers to feature the option by offering a modest discount on packages delivered to such locations.
Finally, let me point out an interesting research question that comes up with these lockers. Suppose that this option become popular in a given neighborhood and the lockers are heavily utilized. How aggressively should Amazon schedule deliveries? A package delivered on Wednesday morning may not be picked up until Friday evening. Even if Amazon knows the probability that a package will be picked up by a given time, it is a nontrivial problem to figure out whether a given delivery request to a currently full location should be granted.