For e-tailers, there's still a hefty price tag attached to providing the kind of expedited service that's increasingly becoming the norm.
The proof is in the latest Holiday Outlook survey from PriceWaterhouseCoopers LLP. According to the 2017 report, 39 percent of consumers want their orders delivered in two or fewer days. Half say a delivery time of between three and five days is "acceptable."
E-tailers have been quick to satisfy that demand. In fact, they've been largely responsible for stirring it up. Shoppers who purchase a Prime membership from Amazon.com are used to receiving most orders within two days. Brick-and-mortar rivals such as Wal-Mart and Target Stores have rushed to match Amazon’s service, with varying results. Yet retailers large and small are still being forced to absorb a significant portion of the cost of expedited delivery.
The problem for retailers is that consumers just aren’t willing to foot the bill. Often they don’t think they should have to pay anything extra for faster fulfillment.
“Most people want the cheapest method available,” says PwC managing director Tim Laseter. At the same time, they demand the highest possible level of service.
It’s true that Amazon and others have managed to convince many shoppers to pony up annual “membership fees,” with one of the perks being “free” two-day delivery. But Amazon Prime comes with other privileges as well, such as free streaming of video content. A fee related solely to expedited package delivery is far less attractive to consumers who essentially believe they should be getting something for nothing.
When it comes to various delivery options, “people don’t understand how significant the cost differences are, and the difficulties experienced by retailers without that kind of fulfillment network,” says Laseter.
Whatever the cost, all signs are that online consumers are becoming increasingly impatient. Expectations have shifted to the point that two-day delivery is now considered the norm, Laseter notes. In a few years, that could shrink to one-day service in major markets.
As if the high cost of delivery weren’t challenging enough for online retailers, there’s the problem of handling returns. Catalog merchants have long had to struggle with a flood of returned product, the result of fickle consumers as well as shoppers who deliberately order more sizes or colors of an item than they actually need, then return the ones they don’t.
The coming of e-commerce has only magnified the problem. Get it right, and you might have satisfied customers who will continue to shop on your site. Get it wrong, and you lose them forever, while suffering nasty comments posted on social media.
The cost of handling returns are, of course, built into the price of the merchandise. Still, an inefficient returns operation can doom an online retailer, especially when Amazon and a handful of others have set such a high bar for efficient fulfillment in both directions.
Retailers are attempting a number of creative strategies, says Laseter. They’re experimenting with offering discounts if the buyer doesn’t return the item, or opts for curbside pickup at the store. The idea is to encourage consumer behavior in a manner that’s economically beneficial for both parties.
Other cost-saving options include in-store pickup and lockers, the latter of which are currently more popular in Europe than in the U.S. But college dorms and apartment buildings would be ideal locations at which to install them.
As of now, the shift to anything other than direct home delivery has yet to take on any real momentum, says Laseter. Many consumers remain unaware of the curbside pickup option, or crowd-sourced shopping through third-party delivery services such as Instacart and Taskrabbit.
For brick-and-mortar retailers, in-store pickup is more than a means of saving money on last-mile delivery. It’s also a way to continue to entice shoppers to set foot in the store. When they do, they’re highly likely to buy additional items on impulse.
Similarly, curbside pickup outside the store often leads the consumer to come inside and make additional purchases. One of Laseter’s clients told him that 40 percent of its shoppers who choose the curbside option end up doing just that.
It all depends on the product in question. Shoppers might be happy to let an online merchant fulfill their need for basic packaged items, says Laseter. “But they still want to go in and pick their own bananas.” Others might try on clothing in a fitting room, then order it over the internet.
For omnichannel retailers, the challenge becomes figuring out “the right combination so that you’re not torturing people with things they could do more easily on line,” says Laseter. At the same time, the store needs to offer services that are better provided in a face-to-face setting.
Expedited home delivery isn’t going away anytime soon. So e-tailers must continue to seek ways of minimizing the cost of last-mile logistics. In heavily populated neighborhoods with regular order patterns, they might take advantage of lane density and establish the equivalent of a “milk run,” Laseter says. The success of such an operation depends on multiple factors, including the size, weight and value of the merchandise, as well the need for refrigeration.
“Tradeoffs are happening,” he says. “People are working through the economics to try to figure out the right play.”
As for the salient findings of PwC’s 2017 Holiday Outlook, Laseter notes that “the hype is becoming reality about faster expectations, and being able to deliver on those for consumers. But that doesn’t mean it’s the end of retailers as we know it.”
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