Retail Fulfillment: The Costs to Be Free
Ecommerce continues to increase its share of overall retail sales. While not surprising, the implications of ecommerce growth are vital to the survival of retailers.
- Consumers spent $513.6 billion online in 2018, up 14.2% in 2017 (1)
- Worldwide, consumers purchased $2.86 trillion worth of goods online in 2018, up from $2.43 in 2017 and $2 trillion in 2016 (2)
- Online retail sales will account for 13% of global retail by 2020, or $3.8 trillion out of the nearly $30 trillion global retail market (3)
- Only 9.6% of Gen Z reports buying items in a physical store –– considerably less than their older generations (Millennials at 31.04%, Gen X at 27.5%, and Baby Boomers at 31.9% respectively) (4)
To stay competitive, retailers have to do more than just sell their goods online. If competitive shipping options aren’t offered, it’s easy for customers to go elsewhere – and many will.
“Consumers today want what they want when they want it and they don’t expect to pay a premium to get it fast,” NRF Vice President for Research Development and Industry Analysis Mark Mathews “…and whether it’s next-day or pickup-in-store, quick delivery of online purchases at little or no extra charge is growing so fast that it’s something shoppers are coming to expect.” As ecommerce continues to grow, it’s apparent that fast and free shipping is a key motivator for online shoppers.
- 74% of shoppers would not make a purchase if they had to pay for shipping (5)
- 54% of consumers under 25 report same-day shipping as their number one purchase driver, followed by next-day shipping and free returns or exchanges at 53% (6)
- 53% of shoppers won’t purchase something if they don’t know when it will arrive, but 54% will give repeat business to a retailer that can predict when a package will arrive (5)
- 68 percent of online shoppers expect free shipping even on purchases of less than $50, with 47 percent saying they typically back out if shipping isn’t free (7)
- 38 percent of online shoppers expect two-day shipping to be free while 24 percent expect free same-day shipping (7)
- 18% of surveyed consumers identified shipping costs as their least favorite aspect of online shopping, with another 15% identifying waiting for the shipment (4)
With free shipping having such a major impact on customers’ buying decisions, retailers must provide this service in order to stay competitive. More importantly, as the saying goes, “nothing is free” – leaving retailers to develop operational efficiencies to absorb the costs. Some estimates show free shipping costs retailers approximately $3-$7 dollars on every item shipped. (8)
In addition to shipping costs, returns also eat into the profits of ecommerce distributors. Customers who buy online expect easy, free returns. Freightwaves estimates that items returned in-store cost about $3 to process and are available for resale within a day, but items shipped back to a distribution center or 3PL cost twice as much to process and take at least 4 days before they’re available for resale. (9)
What can businesses do to keep up with customer expectations for free shipping and easy returns, while keeping prices competitive? The answer is a well-designed distribution operation and reverse logistic network.
- https://see.narvar.com/rs/249-TEC-877/images/Connecting With Shoppers_Narvar Consumer Report Q1 2018.pdf?aliId=1109557
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