Amazon’s plan to introduce free one-day shipping for Prime members across the world has the potential to make ever-faster fulfillment a necessity. In this QAD Precision Report we look at the trend towards shorter delivery times, and how retailers can remain competitive.
At the end of last month, during the company’s Q1 earnings call, Amazon announced plans to turn Prime two-day shipping into one-day shipping. With this declaration, Amazon shook up the e-commerce and transportation sectors.
In the US, Amazon’s vast logistics network means that the internet behemoth can already deliver to 72 percent of the population within one day — and same-day, in some areas too. Over the last four years Amazon has invested heavily in fulfillment centers, bringing the company closer to its customers. Prime same- and one-day shipping is also available in other territories, including much of the European Union, and in Japan. Despite these capabilities, turning the promised one-day delivery into a reality is no easy task. Amazon plans to invest heavily, spending a hefty $800 million during this quarter to expand one-day shipping.
Where Amazon leads, others follow. Two-day shipping has been a Prime benefit for years. Consumers are prepared to pay for the service, which includes, amongst other benefits, access to Amazon’s library of entertainment content. In the US, consumers pay $199 per year; in the UK, Prime costs £79 annually, if paid up front, and €69 in Germany. Nonetheless, there are more than 100 million Prime members in the US alone. Given this reach, it is not surprising that the company has shifted customer demands.
Large numbers of online shoppers now expect two-day delivery as standard. The National Retail Federation surveyed 3,000 adults in the US between October and November last year and found that 40 percent of online shoppers want their deliveries to arrive within two days.
Consequently, retailers, logistics providers and manufacturers have shortened delivery times to keep pace with Amazon. In January 2017, Walmart began offering free two-day shipping for orders totalling more than $35. Similarly, from last March, Target made two-day shipping free for all of its credit card holders, with no minimum purchase amount. Customers without a REDcard must spend $35 to qualify.
Although Amazon made two-day shipping standard, but it’s no longer a differentiator. Therefore, one-day shipping with Prime distinguishes Amazon, positions the company as the market leader and will disrupt many competitors as they try to catch up.
Certain retailers have made same-day service a reality or a short-term goal. Same-day turnaround is likely to become a key differentiator, at least for some consumer products. Few of us will wait 24 hours for toothpaste and food staples if we run out. The time of year could make same-day delivery a deciding factor too, such as over the busy holiday period.
Last year, a survey by Zebra and Qualtrics found that more than three-quarters of logistics companies believe that same-day delivery will be standard by 2022.
Same-day fulfillment does not necessarily mean that the last mile will require express carriers — although this will certainly need to be a part of any retailer’s strategy.
“Buy Online, Pick-up In Store” (BOPIS) services offer the customer a lot of the convenience of online shopping, but also the instantaneous gratification of bricks-and-mortar shopping. Store pick-up is a win-win — it is free for customers and less expensive for retailers. A recent survey from Coresight Research found nearly half — 46 percent — of shoppers in the US collected at least one online purchase within the past 12 months.
Target, for example, offers a number of fulfillment options, including drive-up orders, in-store pickups, and fulfilling online orders from a customer’s nearest store. This strategy is working. Last year, Target saw the highest comparable sales growth since 2005.
Large companies like Walmart and Target can adapt to shorter delivery times because of their large store footprints. Amazon’s investment in fulfillment centers allows them to do the same. Stores without thousands of locations and fulfillment centers will find it expensive to offer one-day shipping as standard. But not every retailer will need to get their goods to customers in the shortest time possible. Retailers need to understand their customers and figure out what is most important to them. Is that value for money? Unique products? A personalized shopping experience? The ability to customize their purchases?
The good news is that same-day, one-day or even two-day shipping is not is a necessity for all customers. Last year, the extensive UPS Pulse of the Online Shopper survey found that 44 percent of online shoppers choose the slowest delivery time. When asked to choose between fast shipping or free, most of us prefer free.
Interestingly enough, younger shoppers are happy to wait much longer than retailers may think. A recent survey found that 47 percent of shoppers aged 14 to 24 years old are happy to wait seven days for their purchases to arrive. For very young consumers, the product price is far more important than speedy fulfillment. As they age, and have less time, this may change.
One issue that has plagued online shopping for years is that delivery generally takes place during the same hours we are at work, running errands, or ferrying children around. Nobody wants to wait all day for their packages, even if they are at home. Porch drop-offs are at the mercy of the weather and theft is not uncommon. Delivery choices could include parcel lockers, store pick-ups, and collection hubs, as well as time-limited delivery windows, or the ability to reroute a purchase to a neighbor or other local area.
Retailers and carriers are also teaming up to make BOPIS easier for customers and expand the areas where it is available. One example is FedEx. Walmart offers customers the option of free pick-up from a FedEx location if there is no Walmart in the vicinity. Likewise, shoppers can pick-up and drop off packages at thousands of FedEx office locations and Walgreens stores across the US. Select grocery stores and specialty stores offer similar services. This allows retailers to utilize a dynamic shipment processing system and can stay current with carrier delivery offerings.
Consumers looking for better value and unique products not available domestically are fuelling the massive growth in cross-border and international shopping. Last year, over half of shoppers in the European Union bought goods from retailers outside the continent. A similar trend for cross-border shopping is happening in North America. In 2017, 83 percent, 78 percent and 47 percent of online shoppers in Canada, Mexico and the United States respectively made at least one make international purchase. In China, changing demographics along with more disposable income has changed online shopping habits too. The World Economic Forum forecasts that cross-border e-commerce between China and the rest of the world will rise to more than $140bn by 2021.
One area that is likely to become a key differentiator, especially with younger consumers, is sustainability. Environmental and social issues are increasingly important to consumers — and many will pay more for sustainable brands. Cleaner, greener supply chains; zero emissions last mile delivery; and reusable, or recyclable packaging are all issues retailers should take seriously.
Subscription services and “auto-ship” fulfillment may be more compelling for consumers. For example, many customers prefer to have items such as personal grooming products and pet food delivered at a regular cadence. Consequently, quicker fulfillment is unnecessary, but guaranteed delivery dates are.
No matter what size your company is you need to control your logistics spend and optimize your shipping operations. That includes identifying consolidation opportunities; considering issues like dimensional pricing and cutting down on unnecessary packaging; ensuring you are not paying steep accessorial charges for incorrect addresses; reviewing invoiced costs versus supplier agreements; and investing in multi carrier shipping solutions to get the best rate and transit times for every shipment.
About QAD Precision – Trusted Global Trade and Transportation Execution
QAD Precision (Precision Software), a division of QAD Inc., provides industry-leading global trade management, transportation execution and multi carrier shipping software solutions from a single, integrated platform. Preeminent industry leaders in every region of the world rely on QAD Precision’s global support centers to leverage thousands of carriers and manage millions of shipping transactions every day. Our open architecture easily integrates with Enterprise Resource Planning, Warehouse Management Systems and legacy solutions. An ISO-certified company, QAD Precision assists companies to minimize shipping costs, optimize first mile and last mile deliveries, automate free trade agreement compliance, avoid customs delays and mitigate the risks associated with dynamic trading environments to maximize their competitive advantage. QAD Precision’s customers span multiple industries including banking and finance, life sciences, high technology, retail, industrial, automotive, higher education and public sector as well as logistics providers. For more information about QAD Precision, visit www.precisionsoftware.com.
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