Retail's BIG Show: Shipping Is the 'Achilles Heel' For Retailers

Online sales are estimated to account for more than 30 percent of a retailer's total revenue in 2014. With e-commerce continuing to grow at a steady pace, retailers are having to rethink the most efficient and cost-effective strategies to transport products from the distribution center to a customer's doorstep. Last month's holiday shipping snafu was a big wake up call for both retailers and couriers, who have yet to strike a balance that enables them to both capture the customer's attention while delivering on their shipping promises.

Here at Retail's BIG Show, everyone wants to know exactly how retailers can prepare for the mounting shipping volume that stems from a growing e-commerce business. Sucharita Mulpuru, vice president and principal analyst at Forrester Research, says one of the answers lies in the "click and collect" model, where customers can order online and pick up in store.

"For retailers, there is one savior here and that is the fundamental truism that shipping to a commercial address is cheaper than shipping to a residential address," said Mulpuru. "Retailers have more commercial addresses than just about anyone, so that is why in-store pickup programs can be so compelling. They offer the opportunity to reduce some of the cost pressures that come with residential delivery."

Cost-savings is going to become even more critical for retailers, since up until now, the consumer has been conditioned to expect free shipping.

"Over the last three years, our data shows that free shipping with and without a threshold is as strong as ever throughout the entire course of the year. Consumers expect to have free shipping and they expect retailers to subsidize free shipping," said Mulpuru.

Although the appeal of free shipping can cause a customer to choose one online store over another, as e-commerce continues to grow, retailers are going to have to come up with another solution. Mulpuru forecasts that in the future, retailers will develop stronger partnerships with USPS, following the lead of Amazon (Nasdaq: AMZN), which parterned with USPS to deliver packages on Sunday, and Staples (Nasdaq: SPLS), which has opened USPS branches inside its stores. After all, the postal service could use the help since, by its own estimates, it will lose about $15 billion in 2014. Developing stronger partnerships with retailers is a win/win situation for both sides.

"Parcels are very profitable for USPS and the growth of e-commerce is single-handedly fueling the growth of parcel delivery," said Mulpuru. "However, there is no question that shipping during the holiday season has been under-priced. This holiday, there were a significant amount of orders that were pushed into the carrier network at the last minute, unanticipated, and they weren't able to meet all of the delivery demands."

For holiday 2014, retailers are likely going to promote more ship-to-store items to reduce costs while still getting goods to customers, as it is likely that the courier companies are going to accept fewer packages at the last minute and better manage expectations to avoid another repeat of what happened this year.

Click here for more FierceRetail coverage from Retail's BIG Show hosted by the NRF!

Related stories:
UPS, FedEx Still Scrambling to Deliver Holiday Packages
Amazon Offers Sunday Delivery with U.S. Postal Service
Amazon Reports Its Best-Ever Holiday Shipping Season
UPS Braces for Record Holiday Delivery Season, Unveils New Navigation System
Amazon Increases Free Shipping Minimum to $35

Suggested Articles

Costco changes up its menu items, and Alibaba and Guess partner for a physical store.

Janey Whiteside, Walmart's new chief customer officer, is well acquainted with the importance of customer service in modern retail.

Whole Foods will offer deals on Amazon's Prime Day, and tariffs against China are causing pricing hikes.