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RESEARCH INSIGHT | Is Faster Delivery Worth It for Your Firm’s Bottom Line?

The Research

The authors study the impact of faster delivery in omnichannel retail using data from a U.S. omnichannel fashion retailer. This retailer originally fulfilled all U.S. online retail orders through a single distribution center in eastern United States. The retailer improved its shipment speed to western U.S. customers by opening a second distribution center in western United States.

Analysis shows that online store sales increased by 3.8% on average in the western United States, and offline store sales increased by 1.8% on average for western U.S. customers who experienced delivery speed change due to the new western distribution center. This effect is positively related to the reduction in delivery time, with each business day reduction in delivery time corresponding to 1.5% (.6%) sales increase on average in the online (offline) store, from a baseline of seven business days.

The quantitative results can be useful for retailers in deciding whether to expand their online store distribution capabilities. Our qualitative results further suggest that faster delivery in omnichannel retail can generate complementarities across channels, depending on the existing levels of brand presence. Retailers can use faster delivery in the online channel to drive traffic to their offline stores in the short term, while the presence of offline stores can help increase the effectiveness of faster delivery in the long term.

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What You Need to Know

  • Adding another distribution center can be costly, and firms are often unsure whether the investment is worth it; this research provides hard data that, indeed, firms can realize increased sales as a result of decreased delivery time.
  • In addition, qualitative results show that faster delivery in omnichannel retail has further benefits: Retailers can use faster delivery in the online channel to drive traffic to their offline stores in the short term, while the presence of offline stores can help increase the effectiveness of faster delivery in the long term.
 

Abstract

The authors study how faster delivery in the online channel affects sales within and across channels in omnichannel retailing. The authors leverage a quasi-experiment involving the opening of a new distribution center by a U.S. apparel retailer, which resulted in unannounced faster deliveries to western U.S. states through its online channel. Using a difference-in-differences approach, the authors show that online store sales increased, on average, by 1.45% per business-day reduction in delivery time, from a baseline of seven business days. The authors also find a positive spillover effect to the retailer’s offline stores. These effects increase gradually in the short-to-medium run as the result of higher order count. The authors identify two main drivers of the observed effect: (1) customer learning through service interactions with the retailer and (2) existing brand presence in terms of online store penetration rate and offline store presence. Customers with less online store experience are more responsive to faster deliveries in the short run, whereas experienced online store customers are more responsive in the long run.

Marshall L. Fisher,  Santiago Gallino, and Joseph Jiaqi Xu (2019), “The Value of Rapid Delivery in Omnichannel Retailing,” Journal of Marketing Research, 56 (5), 732–48.