Last month, fresh-out-of-bankruptcy American Apparel announced that it’s partnering with on-demand delivery service Postmates for one-hour delivery of more than 50 basics items. 

“You’ll be able to receive hoodies, T-shirts, socks and more within a 60-minute delivery window,” Thoryn Stephens, American Apparel’s chief digital officer, said in a statement. “It’s great for traveling or last-minute needs.” 

That’s hard to argue with, really. That is great for traveling or last-minute needs. But it's hard to picture many people often opting for one-hour delivery for such apparel basics on a regular day.

That puts these businesses in a tough spot. Same-day delivery startups need this kind of extra business in order to scale, but will it be enough to cross over from their venture-capitalized cushions to actual profits? 

It looks like they may have to, or perish. V.C. investment fell significantly in Q4 2015, dropping 30% to $27.2 billion, according to venture capital research firm CB Insights. And, Fortune notes, investors and employees alike are more likely these days to vet startups more stringently for signs of viability. With investor zeal waning, there's a new buzzword emerging in the tech and startup vernacular: "profitability." 

With this closer scrutiny, cracks in delivery startups' fortunes are beginning to show, bringing up the spectres of Kozmo and WebVan, two on-demand delivery startups that crashed and burned in the early days of the 21st century. What will it take to be sure that doesn't happen? A few of the companies think they know. 

Who wants it?

Amazon is widely seen as the catalyst of this on-demand delivery rush, and retailers have been scrambling to match the standard it has set. Amazon has assertively shortened the delivery time for its Prime members, first with free two-day shipping and more recently with same-day, two-hour, and even one-hour delivery.

“One- or two-day shipping is no longer an option,” said Holger Luedorf, SVP of business at Postmates, of his company’s new deal with American Apparel. “We are creating entirely new customer expectations.”

But that runs counter to much market research, which has consistently shown that most shoppers often prefer free shipping over fast shipping. In fact, not much has changed from Boston Consulting Group's 2014 finding that a mere 9% of shoppers said same-day delivery would improve their online retail experience, with 74% saying free delivery is important and 50% saying low prices were important.

Just last year, for its 30th annual holiday survey of consumer spending intentions and trends, Deloitte found that even for those pressed-for-time days, free shipping is the top priority for shoppers, with 72% saying they would take advantage of some type of retail free shipping policy. And nearly 9 in 10 shoppers (87%) prioritized free shipping over fast shipping (13%) when shopping online. 

Similarly, Pitney Bowes for its holiday shopping survey last year found that while shipping is important to nearly all (93%) consumers, a 23% increase from last holiday season, 88% preferred free shipping in five to seven days over paying more to get items delivered in one to two days. 

"Most customers don't really need it the same day. It’s nice in big cities, San Francisco, New York," Leigh Helsel, head of retail at tech solutions consultancy ICC, told Retail Dive. "But by and large I’m not sure. When you melt it down is it really adding incremental sales?"

Tough logistics

Last year, Forrester Research in its report, “Avoid The Rush And Deal With The Realities Of Same-Day Delivery,” warned “Same-day delivery is not the be-all, end-all of e-commerce fulfillment.” 

“In order for a same-day delivery service to make sense, retailers should make sure the right business and market conditions exist,” wrote Forrester’s Brendan Witcher. “Indeed, many retailers would realize better returns investing in competencies like omni-channel fulfillment such as ship-to-store and buy online, pick up in store.”

EBay is one retailer that threw in the towel in the space, pulling its same-day delivery app before the end of 2014. And some of the services themselves are closed or faltering.

After abandoning app-called rider services to concentrate on deliveries in August, Sidecar folded its retail delivery service before the end of last year. Food delivery service Spoonrocket shuttered just this month.

Because most are private companies operating mostly with the benefit of venture capital funding, it’s sometimes hard to know how they're doing until it's clear they're not doing well. Instacart also last month reportedly laid off employees, slashed pay, raised prices, and, most ominously, closed up most of its operations in Minneapolis (all except its Target business). The New York Times recently noted that Postmates and Doordash are struggling to keep drivers. 

Flush with cash, delivery services have been able to keep prices low, largely with investment money to prop them up. But getting packages from point A to point B is a complicated business that may actually cost more than what retailers or consumers are charged. It's not clear that the startups will be able to reach the scale to keep those prices low, or whether such services would be very popular if prices rise.

“With one-hour or two-hour delivery there’s no opportunity to get route density or efficiency,” Dick Metzler, CMO at uShip, told Retail Dive. (uShip is the shipping marketplace famous for being the subject of the A&E reality television Shipping Wars, which follows a group of independent shippers who compete to bid on delivery shipments, which is its model.) “You’re seeing some early signs of people not making it. There’s dead V.C. money and you’ve seen some early signs of the chickens coming home to roost.”

The Amazon conundrum 

It’s not that there’s no way for same-day (or even speedier) delivery services to thrive. But, as Forrester Research noted, the right business and market conditions must exist. What that means is complicated, and there may be different solutions.

On the retailer side, whether to offer same-day or faster delivery takes a slew of calculations, said Helsel. Retailers must figure out whether boosting customer satisfaction and conversion is worth the extra costs of same-day delivery options or even of the omni-channel services Forrester endorses that are turning out to take up a lot of resources. In order to make that calculation, the data must be known and analyzed.

The results of that kind of scrutiny are best based on goals for customer loyalty, conversion, and competing with true rivals, Helsel continued, and not just because "Amazon's doing it."

"A lot of retailers have offered tons of services—buy online, pickup in stores, order in store, next day air—and are just now realizing not only the hard fast incremental dollars of that, but also the cost of associate time, quality of service, cost of service, all those kind of things that are soft costs," Helsel told Retail Dive. "It’s a balance between efficiency and being able to convert that customer. It’s important to remember that Amazon wasn’t making money; [Amazon's Web Services] allows the rest of their business to effectively be a loss leader. That can't always be other retailers' business model."

At the moment, says Helsel, most retailers are using third-party delivery services, like those now wobbling due to the apparently impending investment drought. That means that many retailers may soon be dealing with changes to those business models, including, in some cases, higher costs.

The opportunities for delivery companies 

Still, some delivery companies appear to be making it work. Postmates co-founder Bastian Lehmann told Startup Grind's Global Conference in February that, rather than focusing on scaling quickly as some investors have advised him, he's kept his eye on efficiencies and gross profit margins and that the company is on track to be profitable next year.

For same-day delivery service Deliv, which, according to founder-CEO Daphne Carmeli, is profitable (and just last month attracted an investment from United Parcel Service as part of a $28 million funding round), the answer has been in partnering with malls and retailers, including Macy's and Best Buy.

Deliv contracts with drivers who use their own vehicles, Uber-style. She negotiates deals with retailers and malls, which individually set their own rates to customers. Macy's customers see a $5 charge, while Walgreens offers it for free, for example. Deliv shows up as a shipping option on a retailer’s website, just as "expedited mail" or "standard shipping" might.

Deliv's partnership with malls has been especially helpful to the company's model because drivers collect several packages at once from a single place at the mall. Malls are willing to have a mall employee deal with these logistics because Deliv’s service is a way for their tenants to boost sales and capitalize on e-commerce, according to Carmeli.

Because of this, Deliv doesn’t need to market to shoppers the way Postmates does because retailers and malls are the ones offering Deliv's service through their sites and apps. And because Deliv has no need for warehouses or trucks, there's no need to develop the assets or infrastructure that UPS or FedEx (and now, increasingly, Amazon) do, either.

“I don’t have any of the costs of a logistics provider, and I don’t have any of the marketplace’s costs creating demand,” Carmeli told Retail Dive. 

Saying that on-demand delivery is going to fail, Carmeli says, is “too broad a statement that is a bit in vogue with all of the challenges of all these marketplaces.”

Antonio Perini, founder of Italian delivery service Milkman, also thinks he has hit on the right formula. Perini developed a route manager algorithm that was bought by U.S. field services company WorkWave. He’s now taken his understanding of the various permutations of route management to develop a business that offers delivery services for omni-channel retailers and grocery stores. Like Deliv, his service shows up as an option at the e-commerce shopping cart point of purchase. Like Postmates, he's keen on maximizing efficiency.

But, unlike Deliv or Postmates, he employs the drivers and has “Milkman” cars and trucks on the streets of Milan. And he sees his drivers, much like store associates, as important to customer service and potentially key to sales, for at least certain kinds of deliveries.

For now, though, Perini has found that consolidating package deliveries for optimal routes—something that can change daily and requires the wisdom revealed by his software rather than more old-fashioned policies like assigning drivers to static routes—is 70% of his business. For all orders, shoppers can choose a window of time for their item to be delivered. The remaining 30% of his capacity is reserved for on-demand orders and last-minute changes.

His system allows for the extra swiftness and flexibility because he has figured out the point at which any excess capacity of his bread-and-butter business can be profitably turned into time and resources dedicated to on-demand deliveries, for which he charges a premium.

“It is very complex, as you can guess, one vehicle and 80 addresses for one day is a typical problem,” Perini told Retail Dive. “But there’s many different solutions in terms of how many sequences exist. As a customer, you may be willing to trade some of your time constraints for a discount. Some shoppers value their time while others care a lot about money. Or sometimes you want the luxury of having your delivery done in a given hour. It will come at that price, but I have an advantage: I have capacity, so it’s extremely cost-effective for me. The two things balance themselves.”

Is fast delivery a premium service?

And with that, Perini may have hit on the mindset that is missing these days from the on-demand economy: the idea that extremely swift deliveries are luxuries that require a premium. Amazon gets that, sort of—its one-hour delivery for Prime members is $7.99, two-hour delivery is free (with a suggested $10 tip).  Those fees and suggested tips garner plenty of complaints on its Prime Now page. Meanwhile, Amazon is also scrambling to contain its delivery costs, which are rising faster than its sales. And, of course, Prime members already pay an un-cheap $99 each year.

Still, by and large, Amazon and the many on-demand delivery startups—and the retailers partnering with them—have given many consumers the idea that “disruption” means taking advantage of “excess” capacity in logistics that allows for swift delivery of a capricious purchase of pretty much anything for very little cost.

It’s not really clear how much excess capacity is out there, or if it can be both scaled and well monetized. But there’s a truth, as articulated by Forrester Research, that many of these startups will have to come to terms with, if they haven’t already: “While 29% of online U.S. consumers are interested in same-day delivery, most wouldn't pay extra for it.”