Online is driving the retail market, and increasing online retail sales means making the process quicker and cheaper and easier. But achieving those objectives is far from trivial. Malory Davies investigates…
If there is one single area of activity where good logistics can make a real difference to business performance it has to be online retail.
Holding goods in a warehouse is obviously cheaper than having to lease expensive high street property, and that means the online retail can also hold a wider range than a traditional store. And as consumers become more accustomed to buying online, it’s possible to sell goods online that traditionally would have required a visit – even vans are now being sold online.
The big problem, of course, is the cost of getting the goods to the consumer, and it is apparent that there is a restlessness among the big online retailers to improve service quality and reduce cost in a bid to increase online sales.
Stephen Watson, Microlise director of product, highlights the seismic shift in the market. “Research carried out by OC and C Strategy Consultants has identified the seismic shift underway. In 2005 91 per cent (£152bn) of sales in the UK were made in store. By 2015, this figure had dropped to 78 per cent with almost a fifth (£35.9bn) of sales made online for home delivery. The research predicts that by 2025 home delivery could be responsible for 30 per cent of sales and click-and-collect for 10 per cent, while in-store purchases will decline to 60 per cent.
And Matthew Robertson, co-chief executive at NetDespatch, points out that the e-commerce market saw 20 per cent year-on-year growth through 2013 and 2014, decreasing only to a 15 per cent growth for 2015 and 2016. “All signs suggest that e-commerce will continue to grow, however, despite some scaremongers predictions, the high street won’t die, it will simply adapt to its place in the market. Therefore, the question is not how much scope there is, but how we handle it. The key lies in how both retailers and carriers can understand and facilitate consumer preferences for convenient delivery and minimise the amount of failed deliveries.
“We are seeing more and more innovative ideas taking shape in the industry, as retailers recognise the need for a seamless multichannel approach. High street retailers also have their part to play. The industry now understands how shoppers like to shop, hence the increase in showrooming, where stores are set up predominantly for browsing and not necessarily purchasing. A great example of this is Burberry’s flagship store in Regent Street which is practically a digital showroom. In the first instance they obviously want you to buy there, but knowing that the impulse purchase isn’t always the way that stores will make their money.”
Patrick Gallagher, chief executive of On the dot, the CitySprint brand, says: “Today, shopping is all about customer experience, and deliveries play an integral part in this. For a consumer making a purchase online, the courier arriving at their doorstep with their parcel might be their only face-to-face contact with the retailer. For smart retailers, this means deliveries are quickly becoming a point of differentiation, and an opportunity to showcase their brand.
“While click and collect is likely to retain its popularity, particularly within the grocery sector, it is never going to be able to meet the growing demand for convenience alone. Smart retailers will instead work with delivery providers to put their customers first by offering a suite of convenient deliveries – including, but not limited to, click and collect,” says Gallagher.
Watson believes that new opportunities will revolve around retailers’ adding extra services to increase the convenience factor yet further – while also increasing efficiency and ultimately cutting the cost to the consumer. “New in-cab technologies are also up-skilling delivery teams to enable the provision of extra services, such as installation and configuration of electrical and white goods, opening new revenue earning opportunities. There is also the potential to deliver products for other vendors.”
While there has been rapid development in parcel delivery, the rate of growth in the two-man market has been rather more modest.
Nevertheless, says Jim Hartshorne, vice president of operations, home and specialist retail at DHL Supply Chain: “It’s a pivotal time for home delivery services. Growing internet accessibility and digital capabilities have meant that an increasing number of consumers are purchasing big ticket items, white goods and larger brown goods online and having them delivered to their doorstep. As a result it has emerged as a rapidly-growing market, with the two-man delivery sector alone experiencing 6.5 per cent growth a year in comparison to an average 2 per cent growth experienced across other sectors.
“Home delivery is set to be an area of continued focus, investment and growth in 2017, as retailers look to seize on the market opportunities available and directly measure the customer satisfaction of home delivery services. With retailers competing on service, we may see businesses training two-man delivery teams with increasingly specialist installation and assembly knowledge to provide the customer with a fully rounded service,” says Hartshorne.
And Dave Walmsley, managing director at Palletways in the UK, highlights the scope for growth in home delivery for all product sizes and pallets. “Currently, the market offers two primary routes to clients: owner operation solutions which includes in-house delivery arms of the seller and third party delivery businesses who are effecting the delivery on behalf of the seller. The number of items that can be delivered to the home continues to rise so there is no reason why the market would do anything but grow,” says Walmsley.
Colin McCarthy, managing director of two man delivery specialist Panther, has seen business grow strongly over the past year. Managing capacity to handle the growth is now the issue, he says. Panther is planning to open three new cross-dock facilities to accommodate the growth and is looking at whether it needs to expand further, he says.
It has also invested in an IT upgrade to send customers a message at the point of ordering confirming the date of delivery. This is in addition to messages sent the day before, confirming the date, and then the night before, advising of a two-hour delivery window.
McCarthy says: “Our new improved messaging service is, we believe, a first in our industry and we will continue to listen to our customers to provide what their customers want.”
As well as two-man delivery, Panther also offers a one-man assisted white glove home delivery service to a number of online and multi-channel furniture and white goods retailers. However, says McCarthy, the company has no plans to compete in the small parcels business.
But there is also the view that innovations in the logistics of home delivery can drive growth in the retail market.
DHL’s Jim Hartshorne argues that to effectively provide home delivery and more particularly in-home services we need to ensure we have a workforce with the right kind of skills. This means either recruiting for a particular type of candidate with customer service capabilities or investing in training.
“For the retailer the challenge in finding the cost-service balance. Offering either two-man home delivery or in-home services comes at a significant cost to the business, this needs to be weighed up against the level of customer service differentiation and therefore, competitive advantage it brings. Some retailers are looking at innovative ways of sharing this cost with the customer such as membership or subscription schemes,” says Hartshorne.
Matthew Robertson argues that the key to success is convenience and collaboration. This includes retailers and carriers working together to perfect the delivery experience and customer journey.
“Failed deliveries cost the industry an estimated £750m per year, so the onus is on minimising failed deliveries and maximising first time delivery,” he says.
The key to a better customer experience
Retailers and carriers are increasingly relying on technology to improve their service offering. Patrick Gallagher of On the dot, says: “Whether it’s in business or at home, technology is now the driving force behind almost everything we do – and deliveries are no different.”
“It [technology] is becoming a focal point within the industry and people must supplement technology in different fields to meet different needs and enhance the customer experience,” says Matthew Robertson of NetDespatch. “As an industry we will see collaboration very much being the theme of 2017 and that collaboration will be driven by technology, driving efficiency for everyone in the supply chain from retailer to carrier to consumer,” says Robertson.
Stephen Watson of Microlise focuses on communications: “Automated notifications can let customers know when a delivery is imminent.” In addition, he says, having a live view of fleet status means you can know if there is likely to be a problem in the future. This pre-emptive view allows action to be taken to mitigate the situation.
“When customers do make queries technology can help by giving the customer service team all transport related information in one easy to use portal. This increases the number of calls easily resolved and helps to maintain a strong relationship,” he says.
“Reduce mileage: comparing plan versus actual, drivers can be debriefed when they don’t adhere to the schedule or route, cutting down on wasted mileage. This can significantly improve operational efficiency,” adds Watson.
Duncan Licence of MetaPack argues that technology is already allowing retailers to give customers a dynamic list of delivery choices. This is set to become more varied as platforms are used to assess how, where and when consumers are using delivery, and those choices can be made even more personal to the customer. Technology is also helping retailers to manage costs – they are using data to understand customer preferences and change and adapt their delivery options at the front-end so customer visits to the website are more likely to convert into sales.
The biggest challenge of the year for the home delivery market is dealing with the Black Friday peak – and for many in the business, the mayhem on Black Friday 2014 still sends a shudder down the spine.
But, lessons have been learnt and 2016 had none of the drama of earlier years. NetDespatch’s Matthew Robertson says: “Black Friday 2016, for me, was evidence that in fact, lessons are being learnt. Unlike previous years, the many different parties managed peak very well. Retailers worked competently with carriers, planned ahead, and did the best they could to meet high expectations of a peak period that was not just one or two days, but actually extended across two weeks.”
DHL’s Jim Hartshorne says: “In 2016, we saw a reduction in in-store footfall over the Black Friday weekend, with decreases in shopper numbers both on the high street and in shopping centres. Online seasonal spikes are slightly easier to plan for from a stock management perspective but need to be planned for through the provision of click and collect services and having the resources for more home deliveries.”
Patrick Gallagher of On the dot argues that increasingly retailers understand that when it comes to peak season, fulfilment is the best way to build and retain customer loyalty. While shoppers are drawn to the Black Friday and Christmas sales for deals rather than deliveries, at such a busy times they do expect their goods to arrive at a time and place most convenient to them. Looking to this year’s peak season, it’s never too early to start planning. Retailers need to start working with delivery partners now to ensure they have the networks in place to weather high demand and set realistic fulfilment goals.
Robertson also focuses on communication and collaboration. “Carriers are very capable of taking and delivering predicted numbers, but if a carrier is used to delivering 200 parcels and arrives at a retailer’s to be greeted with 10,000, then there will be an issue. A more communicative and technological approach enables carriers to resource more effectively.
“There is also the challenge of retailers placing the burden of next day delivery on carriers. Not all carriers can upscale three times per year, so the onus is on the retailer to manage the consumer’s expectations during peak periods. In research that we conducted last year we found that if you make the consumer aware of time of delivery, even if you say it will take 3 days, the consumer will be understanding. It’s when they are expecting the delivery the next day and it doesn’t arrive that they begin to wonder where the parcel is,” says Robertson.
Licence points out that MetaPack has seen retailers take the sting out of peak periods by taking control of the discounting calendar and actively suppress demand when they reach thresholds. “In the future, to help manage costs and the consistency of service, parcel carriers may actively manage supply and demand in their networks.”
Dave Walmsley of Palletways points out that the impact of Black Friday is different for pallet networks and parcel services. “Often the pallet networks provide stock further up the supply chain in order for others to pick and pack those pallets to generate the parcel traffic.
“Therefore, there has not been a surge of demand that we have found requires special measures to handle it.”
A smooth and efficient returns process
Britain has become a nation that shops to return, says Patrick Gallagher of On the dot.
“Retailers that don’t work with providers to offer a convenient returns process risk becoming alienated. By balancing customer convenience with cost and efficiency, delivery providers can ensure they’re offering retailers a returns process that fits in with the lives of their customers and does not compromise supply chains.”
MetaPack’s Duncan Licence argues that retailers need greater visibility of what is in their reverse supply chain and more control over how they manage this supply chain and deliver a better customer experience. “Returns policies are increasingly being seen by consumers as a differentiator between retailers. In our recent survey among 3,589 European and US consumers, 49 per cent of respondents confirmed that an online merchant’s returns policy had deterred them from making a purchase, and 39 per cent said that they always look at a retailer’s returns policy before they complete an online purchase.”
Stephen Watson, Microlise director of product, says: “There must be technical integration of systems between suppliers, retailers, transport providers and the consumer. All returns information has to be clear, available and standardised so that the person at the doorstep knows the rules. When a return is made and the product is back at the depot, how is this then going to be returned to the supplier? A complete reverse logistics process must be in place otherwise risk escalating costs and unsatisfied customers. Ensuring a smooth and efficient returns process also requires consistency and a process in place if drivers are expected to take payment,” says Watson.