How the Postal Service Can Help Local Retailers Beat Amazon - Washington Monthly

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Postmaster General Louis DeJoy testifies during a House Oversight and Reform Committee hearing on the Postal Service on Capitol Hill, Monday, Aug. 24, 2020, in Washington. (Tom Williams/Pool via AP)

In June of 2018, CVS announced a first-of-its-kind deal, a partnership with the U.S. Postal Service to deliver prescription medications and over-the-counter products, such as toilet paper and facewash, to customers within one to two days for a modest delivery fee. The arrangement was driven by the obvious need to help the drugstore giant compete with an even bigger corporate behemoth that had all but taken over e-commerce: Amazon.

Indeed, the move came as Amazon was preparing to roll out a prescription drug offering and ramp up its sale of medical supplies, according to The Wall Street Journal. CVS soon launched the pilot from its nearly 10,000 pharmacy locations throughout the United States. Sure enough, the program was a hit, according to the Rhode Island-based company, the largest pharmacy chain in the nation. “We’ve seen strong delivery growth and great customer feedback since our launch of one-to-two-day delivery and have since offered a three-hour on-demand delivery option,” Matthew Blanchette, a CVS spokesperson, told me.

The success of Amazon, after all, had proven that the convenience of online shopping was a boon for consumers. Why wouldn’t the same principle also work for other major retailers with a vast and expansive reach?

Other corporate titans caught on quickly. The next year, both Target and Walmart forged similar deals with the Postal Service to expedite the delivery of their products directly to customers after ordering them either online or over the phone. The timing was serendipitous. Unbeknownst to the higher-ups at the companies and the USPS, these services would become even more essential a year later, when the pandemic reached America’s shores and changed life as we once knew it. In 2020, for instance, e-commerce sales in the U.S. jumped by almost 93 percent, according to an Accenture study, making up 22 percent of all retail sales—double the amount from one year earlier. “A ‘never-normal’ has arrived for e-commerce sales—and consequently, for post and parcel organizations,” said Brody Buhler, a managing director at Accenture. “Simply put, more packages need to be delivered.”

But while these special programs between the Postal Service and large retail corporations have provided those companies with a much-needed lifeline during the Covid-19 crisis, no such USPS service has been available for small, local retailers, leaving them at yet another competitive disadvantage.

According to economists at the Federal Reserve, more than 200,000 establishments have permanently closed since the pandemic, more than 100,000 of which were small, local businesses. “Vacancy rates for office and retail are reaching levels last seen during the Great Recession,” the Fed study says. Meanwhile, major retailers have remained far less scathed.

Of course, it’s great that the USPS offers a valuable service to CVS, Target, Walmart, and the like that has benefited those businesses and their customers. It is also helping, to a certain extent, to level the playing field between Big Box stores and Amazon, which is projected to account for more than 40 percent of all e-commerce by years-end. The problem is that the agency is leaving out the rest of the retail industry—predominantly the smaller, local retailers that are vital parts of their community’s fabric. I asked the Postal Service about the existing programs and whether the service was considering expanding them to include smaller retailers. “Like any prudent business, we do not discuss the specifics of our business relationships,” David Partenheimer, a USPS spokesman, told me.

Fortunately, however, there happens to be an easy way for the Postal Service to offer small businesses fast, local shipping, according to dozens of current and former USPS officials and industry analysts who spoke to the Washington Monthly.

The idea is simple. Local post offices can form arrangements with small, local retailers to offer same-day or next-day delivery to customers with addresses in the same or nearby zip codes. Postal workers could pick up the packages and then send them out for delivery rather than first routing the packages through processing centers. In some cases, especially in rural parts of the country, those facilities are more than 100 miles from the nearest post office, substantially slowing down delivery. In other words, the USPS would cut out the processing centers and deliver packages straight to the customers in less than 24 hours. Were the program a success, the USPS would surely need to make the necessary investments to expand it. But that would also mean that the program was working and thus bringing in more revenue for a semi-public institution that has for years been in dire financial straits.

It’s a model that has worked. As the Monthly first reported last October, the Postal Service expedited the delivery of absentee ballots in the final days of the 2020 election by allowing letter carriers and postal workers to forgo sending the ballots to processing centers and instead take them directly to local election boards (after the postal unions lobbied for the proposal). According to USPS insiders, the arrangement enabled hundreds of thousands of ballots to be delivered in one to two days—as opposed to five to seven days.

Imagine if the Postal Service could adopt the same model to help you get coffee beans from your favorite local roastery, or hair cream from your local salon, or new bicycle tires from a nearby shop within a day or two. That would be good for you. It would be good for the roastery, or the salon, or the bike shop. And it would be good for the USPS itself. Why, then, doesn’t the Postal Service offer such a service—or even want to talk about it?

According to multiple sources inside USPS, there’s nothing especially challenging about offering 24-hour local package delivery. In fact, unofficially, some post offices are already providing it. Lori Cash, president of the American Postal Workers Union’s Western New York chapter and a 23-year USPS veteran and post office clerk, told me that post offices under her jurisdiction already circumvent processing centers to get customers their packages more efficiently on a regular basis.

“If a package is shipped from a candy shop in Lockport to a house in Lockport, we’ll often just take it directly to the destination to get the shipment to the customer quicker,” she said. “So, we already do this, we just don’t market it. If we did advertise this as a service available for nearby businesses, I imagine that many local retailers in and around Buffalo would take advantage of it—and, I imagine, many customers would then buy products directly from those shops more often than through Big Box stores.” As she explained, “If you wanted Anchor Bar wing sauce, for example, you could order it straight from the Anchor Bar and support a small business on Main Street, literally, instead of going to your nearest Wegman’s [supermarket].” (Anchor Bar, the local restaurant and bar where chicken wings were invented as a modern delicacy, is on Buffalo’s Main Street.)

A source inside the USPS national headquarters, who asked to speak on background, also insisted that the idea would be relatively easy for the Postal Service to execute. “It could be shifting previously existing resources,” the source said. “For instance, there has been a decline in nonprofit and first-class mail, so that means there are employees within the Postal Service who have traditionally been assigned to dealing with that who could be transitioned over to dealing with this kind of program.”

Getting the program up and running would require two upfront costs. One would be an advertising campaign to let local retailers nationwide know about the program and one to inform consumers that they can start ordering from their local mom-and-pop stores and get the products delivered to them as quickly as if they ordered from Amazon. The second would be developing smaller processing equipment and trackers that can be housed in small post offices. That way, postal workers could still track packages and data without sending them to a large facility and delaying the delivery process. But those costs should be more than made up for in additional revenue that USPS would bring in, said the source.

The good news is that there is a ready vehicle for making those investments. In March, Postmaster General Louis DeJoy, the controversial Trump appointee, released a 10-year plan for USPS to achieve “financial sustainability” by, in part, generating $24 billion in net revenue from “enhanced package delivery services for business customers.” The bad news is that the plan was vague in the extreme about how it would meet that objective—with no hint of whether a new local express package delivery option was being contemplated as part of the plan.

As virtually all industry analysts suggest, the future lies in online shopping and package delivery. Increasingly, the majority of shipping will come more from local inventory; an Accenture analysis found that more than 50 percent of all e-commerce will come from local warehouses and fulfillment centers by as early as 2023, with the potential for that number reaching as high as 70 percent. That’s because of the growing popularity of online shopping and consumer demand for same-day or next-day delivery: 67 percent of the Accenture survey’s respondents said they valued that service.

Unsurprisingly, another Accenture consumer research poll discovered that online shipping has only become more popular since the pandemic. People who went from making one out of twenty of their purchases online now report making one in six of their purchases online. Clearly, once people start using a more convenient service, they don’t go back.

So far, this trend has only added to the crisis facing local retail. One only needs to drive through struggling small towns and urban and suburban neighborhoods to see the boarded-up shops and vacant buildings that were once filled with vibrant businesses. These businesses fill two needs at once for their communities: employing workers and offering products and services that people need and want. No question, if Amazon had its way, those retailers would be a thing of the past while the Goliath continues to dominate the entire e-commerce sector.

But no iron law of technology or economics says that the growing consumer appetite for same or next-day package delivery must hurt local retailers. In fact, the opposite is true: their very proximity to their local customers ought to give them what Adam Smith famously called a “comparative advantage.”

The Postal Service is almost perfectly positioned to help them exploit that advantage. As a government agency and quasi-public institution, USPS has long promoted regional equality by not charging by the mile or requiring extra postage to ship mail and packages to low-volume and difficult-to-reach parts of the country. It also provides discounted rates for the shipping of books and other printed materials. There’s no reason, therefore, that it couldn’t also support small businesses by offering them lower rates for local express package delivery than it does for CVS or Amazon. At the very least, it shouldn’t put its thumb on the scale by providing the behemoths with volume discounts on delivery that are lower than what it offers the mom and pops.

This kind of program could not only help revitalize local retail in America. It could also revive the Postal Service. USPS desperately needs some fresh thinking to address its crippling finances and find new methods for delivering for the evolving needs of the American consumer. Express package delivery for local retailers seems like an obvious opportunity. The question is whether the Postal Service has the leadership it needs to seize it.

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