Holiday shopping season is in full swing, which means the holiday shipping season is in full swing.
Couriers are working overtime to keep pace with mounting e-commerce deliveries. While that seems like jolly news for online retailers, the Grinch is lurking in the form of skyrocketing costs to get each online order to its intended doorstep faster and cheaper.
Supply Chain Math
Stepping outside the housewares business for a moment: Consider that you can receive 10 pairs of shoes from Zappos and return nine free of charge in both directions. As enticing as that might be for the consumer, it’s hard to figure how such supply chain math could work over time for online retailers or, more likely, vendors expected to subsidize much of the e-commerce supply chain.
Logistics specialist Lee Clair, a partner in Zubrod/Clair, recently told housewares executives at the IHA’s annual CHESS conference that e-commerce supply chain costs as a percentage of e-commerce sales typically run in excess of 30%, considerably higher than the average supply chain cost ratio for store-based sales.
The rush to free shipping, Clair stressed, isn’t a sustainable long-term strategy for digital commerce. Even as online sales volumes continue to soar, direct-to-consumer sellers won’t gain the cost-saving scale enabled by bulk brick-and-mortar distribution.
There is no easy escape for an e-commerce trade that has trained shoppers, however shortsightedly, that they can expect the lowest prices, 24/7 convenience, unlimited assortment and now, in a growing number of situations, free shipping and returns.
Free shipping may become a more tenable expense for e-tailers that can convince preferred customers to pay annual premiums, as with Amazon Prime. It also serves as a reasonable value-added incentive to step consumers to fuller shopping carts and higher register rings that can absorb more of the shipping cost.
Meanwhile, full-service distributors and 3PLs that stock broad, deep quantities relatively close to delivery destinations can help mitigate escalating direct-to-consumer fulfillment costs for retailers and vendors alike.
Bricks-and-clicks operators can ease fulfillment costs by offering in-store pickup for online orders (with the added benefit of driving store traffic).
Another low-cost, swift fulfillment alternative could emerge as crowdsourcing transportation outfits such as Uber, which is already testing on-demand home delivery, set their disruptive sights on the parcel transit establishment.
Consumers are growing more demanding in their e-commerce expectations, even if such entitlement isn’t necessarily of their making. Whether or not it’s too late to reverse the momentum toward free shipping, a stronger collaboration is needed between e-tailers and vendors to defend higher product values to mitigate the uncontrolled online price and margin erosion that won’t support increasing delivery costs.
Despite efforts to streamline e-commerce fulfillment, there is no such thing as a free ride. Something has to give, or someone’s going to pay.