Retailers are promising to deliver more packages in just a day, an attractive feature for shopping procrastinators like Jeff Chin.
“Some people plan ahead, but some might not—like myself,” said Mr. Chin, a physician in the San Francisco Bay Area. “You think of someone to get a gift for last minute, and if it comes the next day, it’s that much easier.”
The scramble between Thanksgiving and Christmas, already a hypercompetitive period for retailers, has gained a new twist, as the nation’s largest companies lure shoppers with faster delivery offers. Pushing the delivery needle is Amazon. com Inc., which is spending $1.5 billion in the fourth quarter to expand its free one-day shipping program.
“We’re adding new transportation capacity and putting more selection in fulfillment centers closer to customers,” said Maria Renz, Amazon’s vice president of global delivery experience. Customers say they continue to look for quicker delivery options, even if they are planning ahead for the holidays.
While many traditional retailers are struggling to keep pace, Walmart Inc. and Target Corp. have held their ground by increasing their delivery capabilities or getting shoppers to pick up online orders at their stores. Both chains reported strong third-quarter digital sales and increasing foot traffic.
Amazon, which pioneered two-day shipping more than a decade ago, began in April to expand one-day shipping across the country and add more eligible items. The Seattle tech giant is betting that next-day shipping will boost its Prime memberships and strengthen its grip on e-commerce sales.
More than 10 million items are available for next-day shipping on Amazon’s website, including cookware, videogame consoles and other best-selling items. Amazon is hoping to grow the number to more than 100 million items. The company declines to say how many markets its one-day shipping covers except that the service is available “coast to coast.”
From November 2017 to this August, the share of Amazon packages being offered for one-day shipping increased to 35.6% from 12.4%, according to Rakuten Intelligence, which tracks Amazon packages.
Amazon Chief Financial Officer Brian Olsavsky recently said speedier shipping is causing Prime members to shop more. Sales in Amazon’s online stores rose 22% in the third quarter, double the growth rate a year earlier, but the push to speed up shipping has hurt its profit.
“The holidays will be a pretty good first test to apply the logic, ‘How much do people really need next-day shipping?’” Morgan Stanley analyst Simeon Gutman said. Amazon is increasing its share of overall retail spending, the bank estimated, and now captures 25 cents of every incremental dollar consumers spend, excluding cars, fuels and restaurants.
Customers increasingly expect faster delivery speeds. A survey this June by investment bank RBC Capital Markets of more than 2,000 shoppers showed that 64% of respondents were either “extremely” or “very” interested in next-day shipping, compared with 43% in 2013.
Walmart’s and Target’s one-day services cover a much narrower group of products than Amazon’s. The companies both offer free next-day delivery on orders of $35 or more, though Target says many orders below the $35 threshold arrive in as soon as a day. Walmart said its next-day delivery covers roughly 220,000 items. Target’s covers roughly 100,000 to 150,000 products, Mr. Gutman estimated.
Unlike Amazon, which uses a network of hundreds of warehouses and delivery centers to make fast shipping possible, Target takes advantage of its 1,800-plus stores to quickly reach customers. Walmart uses six fulfillment campuses throughout the country and has more than 4,700 stores in the U.S. near customers.
Both companies say their next-day offers require “no membership fee,” taking aim at Amazon’s $119 Prime annual membership cost, which includes free one- and two-day shipping. Walmart began offering next-day delivery in May. Its service now covers roughly 40 major metro areas.
This year, Target said it is offering free shipping “arriving in as soon as one day” through Dec. 21. Amazon and Walmart haven’t said when their cutoff dates are. Target said it is also attracting customers through same-day delivery in 250 markets.
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Target Chief Executive Brian Cornell said the profitability of the company’s e-commerce sales has improved, as Target has shifted its fulfillment system away from distribution centers to one based on compiling orders from nearby stores.
Retail experts say the fourth quarter will test Amazon’s shipping capacity. In July, some Amazon shipments took longer than the promised one- or two-day windows, as customers flooded the company’s site for its annual Prime Day shopping event.
Amazon in September said it would add 100,000 electric vehicles to its network and has been leasing more airplanes to carry its packages. Investment bank UBS Group AG estimated Amazon’s one-day shipping costs to total about $3.6 billion between its second and fourth quarters this year and grow to roughly $6.1 billion next year.
“Prime Day was the first proving ground for one day,” said Youssef Squali, an analyst with SunTrust Banks. “The fourth quarter will be even bigger.”
Write to Sebastian Herrera at Sebastian.Herrera@wsj.com
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