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November 23, 2012

The Associated Press

People wait in line at the U.S. Postal Service Airport station in Los Angeles last year. The U.S. Postal Service is moving to start a premium service for the Internet shopper.

Postal Service eyes Internet customers

The Associated Press

WASHINGTON - Emboldened by rapid growth in e-commerce shipping, the cash-strapped U.S. Postal Service is moving aggressively this holiday season to start a premium service for the Internet shopper seeking the instant gratification of a store purchase: same-day package delivery.

Teaming up with major retailers, the post office will begin the expedited service in San Francisco on Dec. 12 at a price similar to its competitors. If things run smoothly, the program will quickly expand next year to other big cities such as Boston, Chicago and New York. It follows similar efforts by eBay, Amazon.com, and most recently Walmart, which charges a $10 flat rate for same-day delivery.

The delivery program, called Metro Post, seeks to build on the post office's double-digit growth in package volume to help offset steady declines in first-class and standard mail. Operating as a limited experiment for the next year, it is projected to generate between $10 million and $50 million in new revenue from deliveries in San Francisco alone, according to postal regulatory filings, or up to $500 million, if expanded to 10 cities.

The filings do not reveal the mail agency's anticipated expenses to implement same-day service, which can only work profitably if retailers have enough merchandise in stores and warehouses to be quickly delivered to nearby residences in a dense urban area. The projected $500 million in potential revenue, even if fully realized, would represent just a fraction of the record $15.9 billion annual loss that the Postal Service reported last week.

But while startups in the late 1990s such as Kozmo.com notably failed after promising instant delivery, the Postal Service's vast network serving every U.S. home could put it in a good position to be viable over the long term.

The retail market has been rapidly shifting to Internet shopping, especially among younger adults, and more people are moving from suburb to city, where driving to a store can be less convenient.

"There is definitely consumer demand for same-day delivery, at the right price," said Matt Nemer, a senior analyst at Wells Fargo Securities in San Francisco.

"The culture in retail traditionally has been to get a customer into the store, with the immediacy of enjoying a purchase being the main draw. So same-day delivery could be huge for online retailers. The question is whether the economics can work."

He and others said that consumers seek fast delivery, but are also sensitive to its pricing. Many will order online and pick up merchandise at a store if it avoids shipping charges, or will agree to pay a yearly fee of $79 for a service such as Amazon Prime to get unlimited, free two-day delivery or even purchase a higher-priced item if it comes with "free" shipping.





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