Online giant Amazon is dropping its free shipping of products below £10 in the UK from this month, now requiring a £3.99 posting and package charge for such items (with some exceptions including books and CD’s). Certainly, for online customers this must feel like the unwelcome forebode of their perfect online shopping world being doomed. While it is actually not the end of free home delivery as higher priced items or orders of more products that together exceed the £10 barrier will still be delivered for free – it might indeed hint to a general trend in online retailing.
What does this mean for the growth in online retail?
Up to this day, online retailers have used free home delivery as a marketing tool to attract more customers to their online stores. Many online fashion retailers, for example, encourage customers to have several sizes of an item delivered – sending back the items that don’t fit in size for free. While this might be a winning strategy to entice customers to buy online the question every retailer must pose to himself is: is this also a winning strategy to break even online?
There are several subjects that already for some time have increased the pressure on online retailers and their logistics service partners suggesting free delivery could be only a gimmick of the early online retail world. In the end, home delivery and returns are services that create significant impact on the whole supply chain network which is becoming more complex and costly.
- Continued strikes in a number of large German e-fulfilment centres staged by the German trade union fighting for logistics workers in e-fulfilment being paid as if working in retail could severely impact on the cost of online retailing. (one could also wonder how the argument that online sales being shipped to the customer means staff involved in shipping is actually working in retail will go down with workers in distribution facilities shipping to a store that are still considered being logistics workers – and paid a lower salary – while doing a similar job?)
- In particular fashion retailers selling online experience an enormous return rate (reported to be between 30-70%). These reverse flows must be handled by the retailer, or its chosen logistics contractors and can significantly impact cash flow and margins – returned items must be collected at the customers’ door, returned to a fulfilment centre, inspected, and then ideally placed back into stock for sale.
- Increasing complexity of supply chain networks that require a complete re-thinking of existing models, including sourcing of raw material, production, transport and supporting real estate facilities
- Significantly increasing delivery journeys per day caused by a steep increase in home delivery including the shipment of low priced small items leading to congestion and rising emissions in urban areas.
Online sales will undoubtedly continue to grow strongly over the next few years – regardless of the subject of delivery fees.
Indeed, putting a price to home delivery could be seen as a good thing. It could help make urban logistics more predictable and sustainable – eliminating a number of delivery journeys as customers would order more conscious. For example, for example, they could put small low cost items in a shopping basket and purchase only when a certain number or value has been reached. Likewise, customers could chose to collect online orders from dedicated collection points (click and collect) in shops, at train stations or elsewhere at convenient city locations – taking pressure from city traffic. Something we all would benefit from.