The looming limits of on-demand delivery

The looming limits of on-demand delivery

Last month, fresh-out-of-bankruptcy American Apparel announced that it’s partnering with on-demand delivery service Postmates for one-hour delivery of more than 50 basics items.

“You’ll be able to receive hoodies, T-shirts, socks and more within a 60-minute delivery window,” Thoryn Stephens, American Apparel’s chief digital officer, said in astatement. “It’s great for traveling or last-minute needs.”

That’s hard to argue with, really. That is great for traveling or last-minute needs. But it’s hard to picture many people often opting for one-hour delivery for such apparel basics on a regular day.

That puts these businesses in a tough spot. Same-day delivery startups need this kind of extra business in order to scale, but will it be enough to cross over from their venture-capitalized cushions to actual profits?

It looks like they may have to, or perish. V.C. investment fell significantly in Q4 2015, dropping 30% to $27.2 billion, according to venture capital research firm CB Insights. And, Fortune notes, investors and employees alike are more likely these days to vet startups more stringently for signs of viability. With investor zeal waning, there’s a new buzzword emerging in the tech and startup vernacular: “profitability.”

With this closer scrutiny, cracks in delivery startups’ fortunes are beginning to show, bringing up the spectres of Kozmo and WebVan, two on-demand delivery startups that crashed and burned in the early days of the 21st century. What will it take to be sure that doesn’t happen? A few of the companies think they know.

[…]

Flush with cash, delivery services have been able to keep prices low, largely with investment money to prop them up. But getting packages from point A to point B is a complicated business that may actually cost more than what retailers or consumers are charged. It’s not clear that the startups will be able to reach the scale to keep those prices low, or whether such services would be very popular if prices rise.

“With one-hour or two-hour delivery there’s no opportunity to get route density or efficiency,” Dick Metzler, CMO at uShip, told Retail Dive. (uShip is the shipping marketplace famous for being the subject of the A&E reality television Shipping Wars, which follows a group of independent shippers who compete to bid on delivery shipments, which is its model.) “You’re seeing some early signs of people not making it. There’s dead V.C. money and you’ve seen some early signs of the chickens coming home to roost.”

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