Yesterday Home Depot (NYSE: HD) announced that it has begun offering same and next-day delivery of more than 20,000 items to its customers in 35 major metropolitan areas, with delivery fees starting as low as $8.99. Home Depot executives said that the company would add more than 100 new distribution centers to its supply chain in order to house its inventory closer to its final destination.
Consumers simply need to choose the “Express Delivery from Store” option from the Home Depot website or app.
Home Depot has partnered with two startups to accelerate its move into the last-mile space: Atlanta-based Roadie and San Francisco-based Deliv. Roadie, founded in 2015, completed a $10M Series A in 2015 led by the UPS Strategic Enterprise Fund (NYSE: UPS) and a $15M Series B in 2016 led by Stephens Inc, a large privately-held bank. Deliv, which initially focused on fulfilling same-day delivery for mall shoppers, is an older startup (founded 2013) and more well-capitalized, having raised a total of $40.4M over its two rounds. Significantly, UPS Strategic Investments got in on the action on Deliv’s Series B, which was also in 2016.
While Home Depot already uses trucks to deliver large items like building materials the same day they’re ordered, the new service focuses on consumer goods like power tools and home furnishing that can be delivered by car or van.
We think that Home Depot’s aggressive move into same-day last mile, lapping Lowe’s (NYSE: LOW) tentative experiments in the space, should be seen in the context of the $1.2B Home Depot has said it’s investing to speed up its supply chain over the next five years. Mark Holifield, Home Depot’s EVP of Supply Chain & Product Development, spoke about the company’s priorities on a recent episode of Give me an H, Home Depot’s podcast.
“In 2006 [when Holifield joined Home Depot], we were very focused on just how do we get product to the Home Depot store. We had delivery, but it was not as important as it’s becoming today,” said Holifield. “We’re trying to create a customer experience at the point of delivery, not just putting brown boxes next to the back door.”
Holifield emphasized that Home Depot’s investment in its supply chain was focused on speed and efficiency: “our customers want speed, and they want options… and we have to be able to make money at delivery.” The particular challenges for delivering home improvement products include things like operating a forklift to position a product correctly at a job site or installing a refrigerator in someone’s home, making the last mile operation much more complex than traditional parcel delivery.
Last December, rumors that Home Deport was considering an acquisition of XPO Logistics (NYSE: XPO) caused XPO stock to spike. The deal never materialized, but it sparked a productive conversation in business media about the intersection of retail, e-commerce, and last-mile delivery. The pressure is on to create a sale cycle where convenience encourages spending and a satisfactory customer experience makes consumers ‘stick’ to the retailer. The difficulty is in figuring out how to make last-mile delivery both fast and cheap: in transportation terms, last-mile is labor intensive, there are effectively no networks (unpredictable density, changing routes), and there’s no backhaul.
By partnering with Roadie and Deliv, Home Depot is implicitly acknowledging that the most cost-effective known way for retailers to source last-mile capacity is Uberization, i.e., crowd-sourcing drivers with an app. What remains to be seen is how those companies will protect their market share—and their driver force—without an effective economic moat. As a passenger, it’s trivial to switch from Uber to Lyft, after all, and many drivers work for both services depending on rates.
