E-Commerce for the 2015 Holidays: More, but Different

Just when you thought you had seen it all on Black Friday and Cyber Monday, this year's version of holiday shopping is again being reshaped by changing consumer e-commerce buying habits and retailer fulfillment strategies. While shoppers may be happier, early indications show that retailers may see a lot of profit “coal” in their Christmas stockings this year, and that they are still chasing consumer delivery expectations.

According to the Wall Street Journal, many retailers did not enjoy the Black Friday success of previous years as consumers chose to “cherry pick” heavily discounted items and not buy other goods at the same time. Cyber Monday was a different story, but also not necessarily the one retailers expected. While sales volume was up, revenue per order decreased, especially for those orders placed on mobile phones. A higher volume of smaller shipments means that logistics costs will eat into retailers' peak season margins.

Small package delivery success will be a balancing act throughout the holidays. eMarketer predicts that US ecommerce will grow 14.5% in 2015 and, if smaller format goods are growing the fastest, there could be small package capacity challenges. Carriers and retailers have made some adjustments in advance of the peak season. Some of the leading small package carriers like UPS have been aggressively hiring in advance of the holidays to meet demand. The emergence of lifestyle delivery companies like Deliv and Uber add some capacity options as well. Because of the last minute delivery capacity problems of the past, many retailers are also trying to better manage consumer ecommerce delivery expectations by posting cut-off dates for guaranteed pre-Christmas deliveries. Those ecommerce companies searching for last minute home delivery capacity, however, may struggle to find it. An outcome of this situation will be more ecommerce retailers moving to private or dedicated fleets in 2016 to be in better control of their delivery capacity and customer experience.

To drive top line growth, many ecommerce retailers will continue to offer as much free shipping as possible – much to the detriment to their bottom line, but consumers should expect to pay for faster and tighter time windows for deliveries. In a recent study by Retail Systems Research, consumers preferred deliveries to be free over fast at a charge.  However, ecommerce leaders such as Amazon have been tweaking their delivery models to better define what constitutes a free delivery, and segmenting their delivery service options and charges.

Same day? How about same hour? There is an old saying in retail that still applies to the ecommerce market: There are two types of consumers—those who are cash poor and time rich, and those who are time poor and cash rich. Ecommerce retailing has become as much about delivery service as it is about product assortment as the last impression the consumer has of the retailer is shaped by the quality of the delivery experience—and there are consumers who are willing to pay for convenience and higher quality delivery service. There are a number of ecommerce retailers and delivery service providers either experimenting with or already offering highly responsive delivery options (e.g., same hour as purchased) for a limited set of products at a price. While this will represent a smaller part of the holiday delivery market in 2015, it shows greater promise in 2016 for those high-value/high-need retail brands that compete on service to claw back some of their margin.

Not only are delivery service paradigms being challenged, but so are the supply chain metrics used to measure performance. Ecommerce has put the supply chain squarely in the face of the consumer, and what they care about and how they perceive quality service are different. For instance, the consumer doesn't care if your home delivery operation successfully delivers 100% of your orders based upon you offering an all day delivery window. Consumers would be much happier if you were 95% successful hitting a 2 hour delivery window so they don't have to wait home all day to get their goods.

As a result, delivery performance metrics are moving to a customer orientation such as Net Promoter Score or some other voice-of-the-customer satisfaction calculation. In addition, the overall consumer experience is measured from purchase to delivery, and consumers expect to be informed of delivery progress along the way. Delivery is analogous to getting a present; you expect a good gift and that it is appropriately wrapped. Keeping the customer engaged in the delivery is like the wrapping.

The compressed time of the holidays accentuates the changes that are occurring in ecommerce. Consumers continue to defy established buying patterns. This is causing retailers to scramble to meet consumer delivery expectations and make a buck. If there are two lessons to be learned from the 2015 ecommerce holiday season, supply chain agility and the ability to exploit new home delivery models will be the keys to a more prosperous 2016. 

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