Free Shipping is Ceding Ground to This New Demand
Date: Thursday, March 28, 2019
Source: Sourcing Journal
For many retailers, the logistics world is similar to a 3-D “brain teaser” puzzle: shifting one piece into the right place ends up disrupting all the rest. After spending the better part of the last decade working toward free shipping and returns, retailers are now facing a customer base that’s pivoting its interest to speed.
Numbers from the Pitney Bowes Global E-commerce Report indicate that while free shipping is a major revenue driver now, it’s set to be overtaken by fast shipping. In the U.S., last year, 79 percent of survey respondents said they preferred free shipping over fast shipping, down from 86 percent the year prior. This reversal is mostly driven by millennials, who are willing to pay an additional charge for quicker shipping. Even so, free shipping and fast shipping remain the two most important criteria in determining where to shop online.
“I think in a couple of years, two-day shipping will be table stakes,” said Craig Morris, vice president of strategy and product management at DHL eCommerce Americas. “That presents massive challenges: knowing where your inventory’s located, having the technology to light up the inventory, tying that together in the fulfillment process.” Those technological hurdles, Morris continued, will be the biggest barrier to playing catch-up with Amazon, which has an enormous network of fulfillment centers nationwide, not to mention a vast workforce.
Amazon has driven many of the logistics changes in the last 10 years and will continue to do so, said Brett Cody, director of communications at Pitney Bowes Commerce Services. “Retailers are under increasing pressure to make their shipping offers both ‘faster’ and ‘free-er,'” Cody said, adding that 91 percent of shoppers will leave a website as soon as they find out fast, affordable shipping isn’t available.
Most retailers will never stand a chance of beating Amazon at the shipping game, nor should they try, Cody said. Still, there are areas where retailers can disrupt, innovate and differentiate themselves from the rest of the market. “Most [retailers] are not logistics technology companies,” Cody said, “so they need to find partners in that space who will also champion their brands and delight their consumers throughout the post-purchase shopping experience.”
Tracking is one example. Cody said data from Pitney Bowes indicates consumers track a package an average of eight times between order and delivery. Despite this, retailers cede the tracking experience to shipping carriers, instead of taking advantage of the wide-open space available for a branded tracking experience.
Another area that’s ready for major disruption is the last mile, where legacy players are letting the market fall to upstarts and crowd-sourced delivery.
“As localizing your inventory becomes necessary, all kinds of new carrier options become available to you,” Morris said. “The market is going from three incumbents to more fragmented, so there’s a big question in the next few years of who is going to own that last mile.”
According to Morris, retailers with a store network will leverage those shops to fulfill orders in the next decade, while smaller direct-to-consumer companies will rely on fulfillment networks comprised of similar upstart brands. Niche couriers can also give small brands the ability to rate-shop, or use crowd-based couriers that are more financially accessible.
Returns will continue to be important for retailers going forward, and brands will keep investing into researching that space. After speeding up shipping, learning how to keep customers happy without sinking their margin into reverse logistics will be the biggest focus for retailers in the next half-decade.
A unique issue, may soon come into focus for retailers: an emphasis on branded, aesthetically pleasing packaging.
“Subscription box companies are leading the charge on creative, attractive packaging,” Cody said. “Twenty-seven percent of all consumers, and more than half of millennials, are subscribed to one of these companies.” In other words, retailers that find an inexpensive way to brand their packaging effectively will be at an advantage in the ongoing battle to capture fickle young consumers’ attention.