Good news (at least for shoppers) at Christmas

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Unlike Christmas 2014, last year’s festivities were not followed by endless news stories about failed deliveries – but that doesn’t necessarily equate with problem-free orders or increased profits.

Penelope Ody

Penelope Ody

As the reports of Christmas trading, deep discounting and record online sales have come in over the past few weeks there has been a notable absence: no sob-stories on the news about parcels that failed to arrive so ruining Christmas. It would seem that retailers managed to despatch most of their orders in good time, while carriers anticipated demand and ramped up capacity to cope.

This apparent “good news” story does, however, disguise the on-going problems of online fulfilment: calculating the true “cost to serve” continues to be an issue, as does poor communication with customers, damage in transit, the expense and inconvenience of multiple deliveries for a single order, early “last order” deadlines, and copious quantities of returns.

Research by consultants Kurt Salmon in the run-up to Christmas found many differences in “last order” dates on retail web sites. Some retailers were happy to take orders on 23 December for guaranteed delivery on Christmas Eve, a few played safe and set their last order date before Christmas week, while some opted to change the cut-off date at the last minute – presumably as they attempted to balance demand and capacity – so that shoppers found they were hours or days beyond the revised date when they finally attempted to buy.

This article first appeared in the February 2016 issue of Logistics & Supply Chain

This article first appeared in the February 2016 issue of Logistics & Supply Chain

“In 2014 there was significant disruption to deliveries and an obvious media backlash,” says Judy Blackburn, head of supply chain practice at Kurt Salmon. “Since then many retailers have made improvements in systems and processes so that they can handle orders more quickly and respond to changing demand.” In their survey, Kurt Salmon found that 58 per cent of the orders placed were notified as “despatched” from the warehouse on the same day, while 40 per cent of these were despatched within four hours. In addition 73 per cent of the survey sample offered next day delivery – and fulfilled that promise – although only a third were willing to risk despatch on 23 December.

While Kurt Salmon placed orders and monitored the results, JDA sponsored a YouGov survey of around 2,000 online customers: of these only nine per cent said they had switched retailer because of delivery times, although 23 per cent said they had bought earlier to be sure of delivery before Christmas.


So far so good – but then there were the communications problems. While some are excellent at notifying shoppers of delivery windows and giving an opportunity to re-schedule or leave the parcel in a safe place, others do not and no customer wants to be “carded” a couple of days before Christmas – or have to return damaged goods. The JDA YouGov survey found that a third of those questioned had problems with deliveries: around half of these (15 per cent of the sample) reported a missed delivery, while a third (ten per cent of the sample) received incorrect or damaged goods.

Then there are those multiple parcels: in a similar survey Kurt Salmon organised for Black Friday, just under two-thirds of the orders arrived in one package with 38 per cent involving up to three parcels delivered at different times. “Customers are only charged for one delivery,” adds Blackburn, “so that is another cost for retailers. We also found that 84 per cent of our orders could be returned free of charge and the initial shipping charge was usually refunded as well.”

Simple arithmetic, as well as common sense, suggests this is not doing much for a retailer’s bottom line – especially as it seems shoppers are now returning items bought at full price, obtaining a refund, and then re-purchasing the same item at the clearance sale discount. Kurt Salmon has previously calculated the total cost of fulfilling a £100 grocery order as £28-£30; at a time when the average gross margin on such an order is 25 per cent, supermarkets could be losing £3-£5 on average on every order.

“We are seeing huge margin erosion,” says Blackburn, “and it is vital that retailers understand the true cost of doing business. Those who continue to insist that they can offer the speed of online shopping and the convenience of super-fast delivery, all for free, surely cannot survive much longer.”

Perhaps it’s time for logistics service providers to take some initiative? Could greater efforts to leave parcels in a “safe place” also help reduce the damaged goods problem? (Despite specifying a “safe place” when I order, this info does not always reach the delivery driver who leaves parcels on the doorstep regardless of the weather.) Logistics providers offering consolidation services for orders involving multiple parcels would surely be another benefit for shoppers that could reduce costs all round?

Equally important is managing customer expectation: free delivery, free returns and a refund of all shipping charges is only viable if gross margins are sufficiently high to bear these additional costs to serve. Customers, however, expect low prices and scour the internet for the cheapest options. At some point they will have to learn that they cannot have both.

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