Logistics of online shopping are still something of a mess
We’ll send you a myFT Daily Digest email rounding up the latest Retail & Consumer industry news every morning.
As soon as I started unpacking the bags I knew they were not our groceries. For a start, there were four huge boxes of herbal tea, which no one in our house likes. And there was an ovulation kit.
This was back in 2009, when the UK supermarkets were still trying to find their feet with online orders and would occasionally deliver you someone’s shopping by accident. I called the supermarket to ask if they wanted the things back but they said it wasn’t worth their while to pick them up — an indication of how much returns cost retailers as ovulation kits cost about £20.
I had never considered buying an ovulation kit myself, but now that I had a free one I was curious to see if it would really work. And that was how my youngest child came to be born. I promise you this is a true story. Thank you J Sainsbury.
Most of the time, however, ecommerce deliveries are not such a happy story. In fact, six years on, the logistics of online shopping are still in something of a mess.
Retailers know delivery options are extremely important for consumers. A study of 3,000 retailers, commissioned by ecommerce delivery company MetaPack, found that two-thirds of shoppers would choose to buy from one online retailer over another because the delivery options were better. More than half had simply abandoned a shopping session when they realised they could not get things delivered when they wanted and 76 per cent of shoppers will check an online retailer’s returns policy before ordering.
As Kate Smaje, retail analyst McKinsey’s, a consultancy, puts it: “Consumers are not concerned about the shiny gimmicks, they want retailers to get the back-end logistics right.”
There is also increasing pressure to offer ever-faster delivery times, with Amazon Prime now offering shipments within the hour in more than a dozen cities worldwide. UK retailer Argos recently started offering same-day deliveries seven days a week.
Returns and deliveries represent a huge cost for retailers. Fulfilling “omnichannel” orders — ones that can be placed and picked up in a number of ways, in store and at home — is unprofitable for about 84 per cent of retailers, research by professional services firm PwC found earlier this year. John Lewis, the UK department store, recently announced that it would charge £2 for ‘click-and-collect’ orders of under £30, another indicator that free collection services are becoming unsustainable.
Yet when retailers invest in technology they are focused mainly on the whizzy front-end tools. Peter Buckley, head of account management at Taggstar, which provides data for retailers, says he regularly asks clients if they would like help in optimising inventory and logistics, but they always prefer to focus on increasing sales.
“It is all about growing the top line. Retailers say that delivery is a known problem but too difficult to solve,” Mr Buckley says.
Which means that the industry is very probably riding into a perfect storm on November 27, also known as Black Friday, the biggest shopping day of the year in the US and the UK. This is the day when shops offer big discounts and shoppers queue for hours to snap up bargains. It has eclipsed Christmas and the January sales as the key day when retailers shift goods.
Last year UK retailers tried it out — a little tentatively — and notched up huge increases in turnover, with consumers spending a record £800m in a single day. This year, most have had entire teams spending months planning their Black Friday strategy. In the US, more than $50bn was spent on Black Friday last year.
But can the back-end infrastructure of retail support this orgy of consumption? Last year, UK delivery services such as Yodel failed to cope, resulting in backlogs that lasted well beyond Christmas. This year Yodel has said it is increasing its delivery workforce by 70 per cent to cope with the pressures of the day and will cap the number of next day deliveries it undertakes. UK retailers, too, have invested in increasing their fleets of delivery vans, but will this be enough?
And what will happen to all those goods that get returned once the frenzy has subsided? Some 8 to 9 per cent of goods bought in stores and 25 to 30 per cent of ecommerce orders get returned. Returned merchandise accounted for around $280bn in lost sales in the US last year according to a National Retail Federation report.
The good news is this is creating a business opportunity for clever start-ups, such as Optoro, a fast-growing US-based company that helps retailers to better manage and sell their excess and returned stock. This is where the next stage of retail innovation is likely to take place — in the unglamorous but crucial back-end.