As retail brands vie for excellence in the e-commerce space, more companies are facing pressure from consumers to offer fast, free shipping, something that’s only become feasible for many companies within the last decade.
Amazon is obviously the leader in that space, and in same-day delivery, and a number of other fulfillment options. But in e-commerce, that two-day ship timeframe is seen as a benchmark by many retailers. This goal raises questions: When, if ever, will two-day shipping be the norm across the retail landscape? And if it is, what does that mean for customers’ and companies’ budgets?
According to a spokesperson for Shopify, nearly one in four customers abandon carts at checkout, and more than 50 percent say this is due to extra shipping costs. Increasingly, customers are starting to expect free shipping as a baseline, said Lee Spratt, CEO for DHL eCommerce Solutions, Americas.
“Customers want fast, free and reliable delivery as a starting point,” Spratt said, adding that fast shipping is becoming increasingly important, too. “In terms of speed, the new standard is three days or faster, and we are seeing three of five consumers want the option to have orders placed by noon to be delivered same day.”
But “fast” doesn’t necessarily mean door-to-door delivery via Amazon, as Joe Dunlap, CBRE managing director of supply chain advisory, pointed out. “More recently, ‘fast’ means pickup availability at the store or a kiosk,” Dunlap explained.
Flexible options, like designated delivery slots and on-demand delivery data, Spratt added, are also gaining traction as consumer-facing features in logistics.
Counting the cost
The challenge for retailers and logistics companies is how to make any of these options financially feasible, much less a combination of some or all of them. And in some markets, it’s important to weigh whether free, nearly-instant delivery is even a goal at all. After all, according to Mark Hudson, vice president of global marketing at CBX Software, there’s only one Amazon.
“We want things faster, but the flipside of that is, when you get things faster sometimes they’re less innovative,” Hudson said.
For some retailers, particularly in the direct-to-consumer space, Hudson said investing in product development makes more sense than going toe-to-toe with the logistics machines of much larger companies. Those companies can focus on making shipping affordable and accessible instead of putting resources into speed.
“If you want to differentiate yourself from those really large retailers, of course you’re going to try and develop products faster and bring them to market faster, but they’ll be unique to your business,” Hudson said. “That’s the strategy that retailers outside of Amazon or Walmart are doing to compete.”
Counting the challenges
Businesses outside of those retail giants often run into the same stumbling blocks, many of them relating to the tricky nature of managing the end-to-end production, sales and logistics process, said Dunlap.
“Retailers must have visibility to all inventory in their entire network, across all stores, within all warehouses,” he said. “Retailers have to ensure they have a very fast ‘picking engine.’ That’s reinforced by the fact that much of the daily volume of e-commerce orders comes to retailers in the late afternoon or evening, and that leaves a small processing window in which to pluck the item out of inventory and prepare it to ship by the next day.”
These inventory-oriented challenges are further complicated by customer service expectations, reverse logistics operations, and the transactional aspect of an e-commerce experience. For a company that has limited human capital and physical inventory centers, responding quickly and correctly when customers make a purchase can seem impossible.
There’s also a case for shipping at what would once be called “normal” speeds. As Dunlap points out, some commodity items may cost more to ship than the cost of the goods.
“Ordering a $1 product doesn’t make sense to ship ground parcel, let alone two-day air from anywhere in the United States,” Dunlap said. “Consumers are pushing the edge of retailer’s business economics. This should not be a race to the bottom for retailers.”
“Two-day isn’t necessary for all products,” Hudson explained, giving paper towels and hand soap as examples. “Do I need those in two days? No, I can buy online to save money, wait, and that’s okay. If I really needed those items right away, it would cost more, but I could go to the store.”
Counting on the infrastructure
The race to two-day, then, isn’t universal. But for retailers playing the game, trying to offer the fastest shipping at the lowest price, some challenges will only disappear when there’s infrastructure in place to negate them.
“There is a significant portion of the market which still sees two-day shipping as a challenge,” said Spratt. “The latest research shows that the industry standard delivery times are stabilizing around a three-day mark, and it still may take a few years until two-day shipping becomes a true industry norm.”
Some retailers, Spratt said, can take advantage of third-party, shared-use fulfillment centers, or seek out cost-effective delivery options if decentralized fulfillment is too difficult. Still, though, some businesses just won’t have that as an option, due to location, very small inventories, or other product-specific needs.
In those instances, brands might limit which customers can choose two-day shipping.
“Some retailers that offer two-day shipment limit geographies, have required minimum purchase amounts to qualify for expedited shipping, require membership or offer two-day shipment only for a select group of eligible products,” Spratt said.
Ultimately, then, it’s about determining what consumers value the most. So what will be more important to consumers, fast or free?
“We went through a market crash and a tough economy less than 10 years ago,” Hudson said, noting that many consumers are still reluctant to choose anything but the least-expensive option when making retail decisions. “I think that’s in the back of our minds. Most consumers want shipping to be free, and will pay to get it faster.” Spratt added that studies show consumers will choose free shipping over fast consistently, and that consumers are even willing to wait on a purchase and return to it later to see if free shipping is offered.
Dunlap posits the battle between fast and free is less of a war, and more of a tradeoff. “It may differ order-by-order,” Dunlap explained. “Larger value orders may continue being shipped free. Cheaper orders for valued consumers might be shipped free. And many retailers may choose to continue offering free shipping during key seasons to capture more orders from competitors.”
And according to Shopify, the speed of a package might not truly matter, as long as the customer knows where their package is—and when. “Both are important to consumers, but transparency is key,” a Shopify spokesperson said. “Customers ultimately want to know when they can expect their product to be delivered to their house.”
With an increased focus on post-purchase engagement and advancements in tracking from major carriers, transparent tracking might be the only real inevitability in the logistics world.