The Most Wonderful Time Of The Year For Delivery Companies
By John Haber, CEO, Spend Management Experts
According to industry analysts, the 2016 holiday season is expected to be a positive one. The National Retail Association anticipates retail sales for the season to increase 3.7% to $630.5 billion and the U.S. economy is looking more upbeat. The unemployment rate is holding steady around 4.9% and retail sales for September and October combined were the largest two-month rise since early 2014.
Even though expectations for this year’s holiday season are high, it looks to be different from previous years. E-commerce will likely take a bigger slice of retail spend and as such, delivery times will become shorter.
E-Commerce
E-commerce is playing a growing role in retail sales. Based on U.S. Department of Commerce data, e-commerce sales made up approximately 8.0% of U.S. retail sales during the first half of 2016, compared to 7.1% for the same period in 2015. Not surprising, double-digit growth in e-commerce is anticipated during the holiday season with eMarketer, a market research group, predicting U.S. e-commerce holiday sales to increase 17.2%, while Deloitte predicts a 17% to 19% increase.
Mobile commerce, or m-commerce, will represent at least 30% of e-commerce sales. The growth of m-commerce will continue to grow rapidly with eMarketer forecasting that U.S. retail m-commerce will increase 43.2% during this year’s holiday season.
Delivery
Offering free shipping has become a part of doing business for many online retailers. In addition, the speed of delivery is increasingly becoming just as important. According to a ComScore and UPS survey, about half of shoppers are willing to pay for relatively faster shipping, but are not willing to pay for standard ground shipping.
Amazon has set many consumers’ expectations for faster delivery thanks to its Amazon Prime subscription service. For an annual $99 charge, U.S. consumers can enjoy a growing number of perks, including free two-day shipping; however, as this becomes a standard for other retailers, Amazon is pushing the envelope yet again by offering free same-day delivery to its Prime members on qualified orders over $35. The service is currently available in 29 U.S. cities.
As a result, this holiday season we will see more same-day delivery services as retailers continue to emulate Amazon. Startups such as Deliv, Google Express, and even the traditional providers are expected to play a role in the same-day delivery service rat race.
Deliv is an interesting startup that received funding from UPS earlier this year. Through its venture capital arm, UPS was one of a number of parties to invest $28 million in the crowdsourced, same-day delivery startup. A spokesperson for UPS commented on the reason the company chose to invest in Deliv: “Instead of putting bucket loads of money and going all in, we wanted to learn about the space. Learn about the financial model; learn about the demand model before making a much bigger commitment.” Meanwhile, retailers such as PetSmart, BestBuy, Kohl’s and Macy’s are partnering with Deliv to offer same-day delivery service.
Google Express has recently expanded its delivery service locations across the U.S., and according to the company, now covers 90% of the country. It offers same-day, next-day, and two-day delivery services for either a $95 annual membership or $10 a month for consumers. Instead of being crowdsourced like Deliv, Google Express uses common carriers such as UPS and FedEx to deliver orders.
And speaking of UPS and FedEx, faster delivery service is also available from these two providers. UPS has promoted its Access Points service as a safe and convenient option; it allows consumers to pick up packages at nearby stores, UPS facilities, lockers or elsewhere. For FedEx, SameDay City service in select cities is available.
At What Cost To Retailers?
Competition among retailers is now being driven by logistics due to Amazon’s growing share of the retail dollar, but it’s coming at a price. Bankruptcies are on the rise as retailers such as Sports Authority, Aeropostale, and Pacific Sun have filed for protection in 2016. While the reasons for bankruptcy may vary, the pressure in the retail industry is increasing and more retailers, as a result, are investing in their supply chains to compete effectively.
Free shipping has become standard for many retailers; however, free shipping is not free for retailers. Retailers still need to pay their delivery partner. For this reason retailers need to negotiate delivery contracts for not only the best price, but the best service level. In addition, there are surcharges to be mindful of—and they add up quickly. For example, extra charges may apply to oversized items, address correction and additional handling.
The 2016 Holiday Season
E-Commerce and its sidekick, m-commerce, will reign this season as retailers encourage in-store pick up, while delivery companies such as FedEx and UPS push other delivery locations. For consumers that prefer home delivery, faster service will be expected and the use of same-day delivery will increase from 2015. The consumer will be in the driver seat this holiday shopping season. Retailers will need to comply while keeping a close watch of their financial ledgers.