January 2013 | Commentary | Viewpoint

Surveying the Home Delivery Landscape

Tags: E-commerce

Foster Finley is Managing Director, AlixPartners LLP, 646-746-2453

Shortly after Claude Ryan and Jim Casey began delivering telegram messages in 1907, they seized on the idea to solve a business problem between department stores and the growing urban population in Seattle: managing home delivery of store-bought products.

These new urbanites mostly walked or used streetcars, with only a few owning early automobiles. Safely transporting home items purchased from stores posed a challenge—one that helped catapult Ryan's and Casey's upstart business into what is now expedited carrier UPS.

More than one century later, consumers still love having goods delivered to their homes. Seventy-five percent of respondents to a recent AlixPartners survey made at least one online purchase in the past year, and two-thirds of survey respondents have one or more "shipping memberships" to speed, simplify, and/or reduce the cost of home delivery.

Research predicts the following trends affecting home delivery's future:

  • A leap forward in ease of online transactions—due to the proliferation of mobile commerce, shipping programs and clubs, and online retailing—will drive even more home delivery.
  • To prevent product returns from being a barrier to online purchasing, e-tailers will need to streamline their returns processes, and brick-and-mortar retailers must accept in-store returns and exchanges for online purchases. Today, 49 percent of shoppers cite return difficulties as their top reason for not purchasing online.
  • Consumers will want more home delivery options, ranging from no-frills discounted delivery to premium-priced shipping with value-added services such as user-specified delivery windows, weekend or off-hour delivery alternatives, advance delivery notifications, tracking and re-directing alternatives, and multi-package consolidation.
  • Free shipping will continue to capture consumers' attention. The challenge for shippers and retailers alike will be determining how to offer this benefit without going broke in the process.
  • The possibility of online sales taxes could hurt e-commerce. Twenty percent of surveyed shoppers suggest such taxes would greatly reduce their online purchases, though 41 percent indicate it would not impact their buying habits.
  • Fuel surcharges are being used more often to recoup costs—sometimes with only a rough correlation to the actual period costs of the fuel.
  • Many brick-and-mortar retailers are caught in the conundrum of needing more consumer foot traffic, while at the same time being loath to lose sales to an online competitor. This forces them to balance home delivery offerings with the in-store experience.

The Big Picture

Consumers show a low tolerance for bureaucracy, particularly when it comes to returns, and retailers who think only small packages are suitable for home delivery are missing a major and growing segment of the market.

The same goes for not taking full advantage of loyalty programs, which have become a major purchasing driver in recent years—and are affecting shipping programs.

Meanwhile, delivery providers need to continue to differentiate themselves by anticipating and meeting consumer expectations—be it delivery-window flexibility, various value-added services, returns management, insurance, or time-definite services.

While consumer appetites for shipping have not diminished, what they are willing to ship and how much they are willing to pay for it is changing. Retailers and shippers alike need to find ways to meet this changing demand, while maintaining adequate margins and finding new avenues for continued growth.