Retail Fulfillment: The Costs To Be Free

Retail Fulfillment: The Costs To Be Free

By Bruce Baring

The 2017 peak retail season surpassed most predictions, but as expected, ecommerce continued to increase its share of overall sales. Taking a look at some of the numbers should be a real eye-opener for supply chain professionals getting ready for next year. Here’s a peek at peak 2017…

  • On Black Friday, merchants using the ecommerce platform Shopify processed over $1 million per minute peak, compared to $500,000 per minute in 2016 (1)
  • According to Adobe Digital Insights, the average online order value increased by 3.2% from 2016, averaging $132 (2)
  • According to the National Retail Federation (NRF), holiday sales during November/December were up 5.5% from 2016, totaling $691.9 billion – exceeding the NRF’s forecast of between $678.75 - $682 billion (3)
  • Online and non-store sales were up 11.5% from 2016, according to NRF (3)
  • $2.87 billion was spent online on Thanksgiving, up 18.3% from 2016 according to Adobe Analytics data. $33.26 billion was spent online between November 1-23, a 17.9% increase from 2016 (4)

As ecommerce continues to grow, it’s apparent that free shipping is a key motivator for online shoppers…

  • 93% of online buyers buy more if free shipping options are available, whereas just 58% add more items to their cart to qualify for free shipping (5)
  • 9/10 consumers say free shipping is the top most incentive to shop online more, and orders with free shipping average around 30% higher in value (5)
  • 61% of consumers are somewhat likely to cancel a purchase if free shipping isn’t offered (5)
  • More than 50% of orders from 30 of the biggest ecommerce merchants shipped free of charge (5)
  • 78% of Amazon Prime Customers signed up because of free shipping (5)

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”, they’re going to need to develop operational efficiencies to absorb the costs. Some estimates show free shipping costs retailers approximately $3-$7 dollars on every item shipped (6).

In addition to shipping costs, returns also eat into the profits of ecommerce distributors. Customers who buy online expect easy, free returns. I’ve seen estimates that items returned in-store cost as little as $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 (7).

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. We’ll talk about reverse logistics more in my next blog.