Package Delivery Nightmare – Under Promise Over Deliver

rebeccasOnline holiday sales are expected to grow 8% this year, compared with 5.8% a year ago with flat retail sales overall, according to the National Retail Federation.  While online shopping is often a boon to sales, it can be a drag on profits as brick-and-mortar retailers ship products to their customers’ homes while maintaining storefronts.  Free shipping to the customer is not free for the vendor. UPS predicts deliveries will increase 10% to a record 630 million packages between Black Friday and New Year’s Eve this year.   The USPS is expecting to deliver 600 million packages during the same period, an increase of 11% from last year, while Fed Ex is expected to deliver 12% more packages.

Delivery Challenges Abound:
1- Single-family Housing.  Customers may not want packages delivered to their residences, left at the door.   Some are using their workplace for deliveries which will undoubtedly result in challenges.
2- Multi-family Housing.  A challenge is evolving.  With the onslaught of packages delivered to multi-family housing complexes, package storage and delivery to end consumers is an escalating problem.  The Wall Street Journal’s Laura Kusisto recently reported on the impact of the deluge of boxes on landlords.  Rising tides of packages have no good place to go.  Landlords are challenged to store and distribute packages.  Management offices of apartment buildings have become de facto receiving centers grappling with recording packages, tracking tenants down to pick them up, and finding places to store the parcels.   Some landlords may begin to refuse packages, then what…?
3- High Cost of Delivery.  Retailers such as Target Corp., Urban Outfitters Inc., and Pier 1 Imports Inc. have all reported faster growth in online sales than sales in stores, but are struggling to manage the high costs of delivery.  Shipping fees to deliver clothing can cost as much as $4 to $10 per package depending on the carrier, says Gordon Glazer, director of modal optimization strategy for shipping consultancy Shipware LLC.  Investment in the technology and infrastructure to handle e-commerce fulfillment also weighs on margins.  “Profitability is the biggest challenge because costs are rising faster than revenue,” a JDA report said.

How will package delivery services adapt to changing requirements as more residential complexes refuse delivery?   Perhaps existing package delivery services will provide new offerings.  Intermediary localized storage and delivery services may spring up generating employment and investment opportunities.  An Über-like resource sharing concept using excess capacity at existing storage facilities might be an option.  Housing complexes built with the new economy in mind may offer these highly demanded services and command premium pricing.

Options:

1. In-Store Pickup.  Buy online, pickup in store isn’t working as well as the store owners had hoped according to a recent study.   A JDA Software Group Inc. survey showed that of the 35% who opted to buy online and pick up goods in a store in the past year, 50% encountered problems getting their purchases.  “This is a surprisingly high failure rate of a strategy meant to offset the high costs of conducting e-commerce”, said Wayne Usie, senior vice president of retail at JDA.  Offering products online may be easy, but getting the goods to consumers can be a burden on the bottom line.  Companies are experimenting with fees for home delivery and offering free in-store pickup in part to address the cost issue, analysts say.
2. Lockers. 7-Eleven, Inc. has installed lockers in 200 stores to date in the U.S. and Canada to allow customers to pick up online purchases. Package delivery services and retailers are paying fees to 7-Eleven for use of the locker space for customer deliveries.  The additional foot traffic is expected to drive additional revenue to the chain.   This is a big bet since the lockers occupy physical space that could be allocated to product sales.
3. Third Party Delivery Services.  Some brick-and-mortar retailers are speeding delivery by using their stores as warehouses.   Start-up delivery services Deliv and Postmates are working with Macy’s, Kohl’s, Apple, and others to expand same-day delivery options.  Uber is also entering the same-day delivery arena with its UberRush service in New York, San Francisco, and Chicago to support small businesses.
4. Same Day Delivery. It’s nice to have same day delivery. The U.S. Postal Service is ramping up same-day delivery to compete with FedEx and UPS.   For an average of about $1.70 according to its financial filings, it will take a parcel from post office to residence for big shippers like United Parcel Service Inc., FedEx Corp., and Amazon, who are willing to sort the packages themselves. Keith Byrd, co-founder Transportation Impact LLC, says more of his customers have either considered or have already shifted parts of their package volume to the Postal Service in recent months.
5. Customized package delivery service based on user availability.  Shippers send packages to the service during regular business hours which then schedules a delivery date and time window with the consumer.
6. White Glove Delivery Service. Online sales of bulky items create a niche for those offering setup and installation. Among the largest of these providers are XPO Logistics Inc., Pilot Freight Services, and Fidelitone Last Mile Inc. These companies and others have gained market share by offering competitive pricing on shipping and throwing in services such as trash removal and furniture assembly.

In-store pickup and other shipping strategies will be tested again during the coming holiday season. Target and Best Buy Co. have said they would give free shipping on all online orders to compete, while Wal-Mart Stores Inc.  has decided to continue charging shipping fees on orders under $50.

Shoppers have become less tolerant of service blunders. JDA’s study shows half of people who have had a problem with home delivery in the past year said they wouldn’t buy from that retailer during the holiday season.   “Consumers are unforgiving of service failures for online orders,” the study said. The best strategy may be to UNDER PROMISE and OVER DELIVER.

If you seek additional information, please feel free to comment here or ask the person who directed you to this blog post how to position yourself to take advantage of these emerging opportunities.

 

Rebecca Carfi

The Financial Sage

Join Rebecca Carfi, The Financial Sage as she shares relevant financial information and wisdom garnered from her deep and broad career in Financial Services and Management.

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