There is no stopping e-commerce. On the back of this growth, we have seen huge changes in the logistics industry, as carriers adapt to a new delivery economy. But what is next? Let’s take a deep dive into the 5 key e-commerce delivery trends for 2018:
1. Urban vs. rural delivery: the new divide
We are moving to cities en masse. By 2025 more than 60% of the world population is expected to live in an urbanised area. In 2018 we will be starting to see the effect this has on e-commerce and logistics, creating a growing divide between urban and rural delivery.
Urban delivery: closer, faster
Most innovative delivery start-ups already ignore rural areas, taking Uber’s ‘city-by-city’ approach instead. The reason: outside of city limits stops are so few and far in-between that efficient delivery is almost impossible for newcomers. Also, staying within city bounds is the key to unlocking cheap same-day delivery – the area where start-ups can really bring something new to the table.
Take Germany’s Tiramizoo for example. This service offers same-day delivery in most major German cities, leaving service in rural areas to established carriers. The service is now widely adopted by Germany’s MediaMarkt who use their stores as local distribution centers. Walmart is looking to do the same, following a recent acquisition of same-day service Parcel in New York City. Part of the reason behind the buy is Parcel’s inner-city experience in a market which Walmart describes as “distinctly challenging and essential.” Other successful examples of urban delivery concepts are France’s Stuart and the ‘e-commerce bike messengers’ of Fietskoeriers.nl.
A screenshot from a Zalando strategy report on logistics, highlighting fast urban delivery
The rise of this urban distribution model has a surprising side-effect: prices for urban logistics spaces are skyrocketing. Pure online players desperately need local warehouses to battle against ‘old-school’ retailers whose stores slash warehouses are much closer to urban consumers. Even London bus company Go Ahead is seizing the opportunity by converting some of its bus depots into parcel delivery hubs. Soon empty busses might even be carrying parcels!
Rural delivery, on the other hand, is posing challenges of its own kind. According to Alice Fournier, director at Kantar Retail, e-commerce has fundamentally changed the way people outside of cities shop: “While they traditionally shopped with more of a stock-up approach, having access to free-shipping programs means the flexibility to shop more often, with a lower overall basket value.” The problem: “The inherent costs to retailers of the current model make it unsustainable from a profitability standpoint.”
A possible future solution to this problem lies in the much talked about flying delivery drones. These are unlikely to fly over busy cities soon, but might be the solution for making e-commerce work in the outback. JD.com, one of China’s largest retailers, for example, sees drones as “especially suitable for rural areas where urban density poses no obstacle to unchallenged drone operations, and where poor transportation infrastructure inhibits efficient courier delivery.”
What will this mean? One size no longer fits all. In 2018 it will become more normal for online retailers and carriers to only offer particular (premium) delivery options in certain urbanized areas, as they are looking to keep business cost-efficient.
2. In-home delivery: are we ready to break the privacy barrier?
Both from a cost and convenience perspective home-delivery has one major flaw: it is damn difficult to align the agenda of customer and courier, causing many missed deliveries. What if we could take out this need to meet in person?
Unlocking a new way of delivery
This idea has triggered Amazon to start experimenting with in-home delivery, by smart-locks. The idea: when the driver is at the door the consumer receives a smartphone notification, after which he or she can remotely unlock their smart-lock to allow the driver access. A real-time camera connection should give an extra sense of security.
Walmart took things one step further and is now delivering groceries all the way into your fridge. Could we ask for anything more? Walmart’s subsidiary Jet.com is even handing out smart-locks to consumers, acknowledging the huge potential to save on delivery costs.
Walmart in-fridge delivery
Are consumers ready?
So the industry is ready. But are consumers? This is where things get difficult. 68% of U.S. adults say they’re not comfortable letting drivers access their homes, according to a recent poll. 53 percent report that the idea makes them “very uncomfortable.” What do you think: is this a matter of slow adoption, or has delivery innovation gone one step too far?
3. Nominated Day Delivery: benefits beyond convenience for your customers
‘Ordered before 23:00 today, delivered tomorrow’. ‘Free two-day delivery’. Online retailers have long taken great pride in their delivery speeds, investing heavily moving back their cut-off times. But what is this speed worth to a consumer if tomorrow, or the day after, there is nobody home to receive the parcel? For many consumers it is not necessarily speed they are after – it is certainty.
This explains why we see more and more retailers offering nominated day delivery. Not without effect. Looking into the data processed by the Paazl platform we see that customers who are given the choice purposely select the desired date (later than the first available date) an impressive 22% of the time. Saturday is naturally popular, being the rare day-off for those working full-time. On average customers pick a date 2,7 days after check-out. And the great news? Adding this extra service will not cost you much. As a retailer, you simply push back the moment of dispatch and still use your regular delivery option to get things out.
Take the pressure off
Besides convenience, there might be a second great upside to ‘delayed’ delivery: taking some pressure off Peak Season. Over the years we have seen a growing number of vendors promoting slower delivery times in busy periods to prevent overloading their carriers. This allows them to meet SLA’s, even on Black Friday and Cyber Monday. Examples include American retailer Macy’s who started offering “no hurry shipping” giving shoppers the option of slower delivery in return for “Macy’s Money” that can be used for future purchases. This is similar to Amazon’s “no-rush shipping,” in which customers can skip on free two-day shipping in exchange for slower delivery and credits for videos, music or other items.
Eco delivery at AO.com
For an extra bit of delivery date innovation head over to AO.com, who use nominated day delivery to help save the planet. Customers are shown a special ‘ECO’ delivery day on which AO is “already in your area. That way you help us reduce the traffic on the roads and save fuel. Together we’re cutting carbon emissions.”
4. Delivery drivers are the heroes of our new economy. Is it time we treat them that way.
The rise of e-commerce. On-demand food delivery. Online retailers starting delivery services. We live in a golden age for logistics. Or are we? The immense rise in deliveries is starting to have a serious impact on the demand for drivers and couriers. And the cracks are beginning to show.
A shortage of delivery drivers loomed over the Dutch holidays
Running out of capacity In the Netherlands a shortage of delivery drivers was looming over 2017’s holiday season, forcing some carriers to move office employees to delivery duties. One of the leading e-commerce players, Coolblue, started its Black Friday a week early, in fear of overloading carrier partners. The same company is currently looking for a thousand drivers that will help deliver larger-than-parcel items.
Is free delivery to blame?
Across the border, German carrier Hermes also faced a lack of staff, causing delays leading up to Christmas. Commenting on the delays Hermes pointed a finger at the omnipresence of free delivery in e-commerce, which leaves very little financial room for carriers to properly compensate staff.
First price hike in 27 years
And it is not just Europe that carriers struggle to keep up. Japan is currently in the midst of a true ‘logistical labor crisis’, which is forcing carriers to raise prices – for the first time in 27 (!) years. The reason: their current staff simply cannot handle the surge of e-commerce parcels anymore. By raising prices they hope to reduce demand a little and take some pressure off of their overworked delivery staff.
Hopefully some good will come from all this. Due to the scarcity of drivers logistics companies are now forced to improve working conditions and compensation plans to attract enough manpower. But who will pay for this, when the consumer won’t..?
5. Free or premium delivery subscriptions
Part of the problem causing trend #4: when asked about their delivery preferences consumers are crystal-clear. We want free shipping. There is just something magical about getting things for free, that some are even willing to delay delivery or add extra items to their cart just to ‘qualify’ for free shipping. In an effort to answer to this irrationally strong demand a growing number of retailers are now looking at so-called delivery subscriptions. These offer customers unlimited free delivery in return for an annual flat-fee. Sometimes extra perks are added such as evening- or weekend delivery.
Boohoo.com’s delivery subscription
This model was pioneered by Amazon, who launched Amazon Prime way back in 2005. Since then it has garnered over 80 million subscribers. Besides free two-, one-, or sometimes even same-day delivery, the service includes unlimited streaming of music and video content. Membership is $99 annually. Recently many retailers followed, including ASOS, Boohoo, and Dutch market leader Bol.com.
They are all reluctant to share the results of their delivery subscription but still some figures are available. Way back in 2010 BusinessWeek reported that Amazon Prime reached a break-even point within 3 months, and not the estimated 2 years, because members spent up to 150%(!) more at Amazon since subscribing to Prime. Not only did they buy more often, they also started buying things they did not buy before. Former VP of Amazon Prime Robbie Schwietzer commented: “In all my years here, I don’t remember anything that has been as successful at getting customers to shop in new product lines.”
Demand for delivery subscriptions at various price-points
According to a British study by Global Data 22% of online consumers are now subscribed to a delivery scheme. This number is highest for young shoppers: 34.1% of online consumers between 25 and 34 are a member. The high number of young members is in part driven by fashion retailers offering the subscriptions: 70.6% members of fashion subscriptions are between 15 and 34. Number of consumers who would subscribe to a subscription at various price points.
British carrier Yodel did similar research on subscription models and found out that three-quarters of UK online shoppers are aware of delivery subscription models, but only one-third have ever signed up to one. More importantly: 40% are currently interested in a subscription for unlimited next day delivery. This number increases significantly to 68% for those under 35. When it comes to pricing cheaper is naturally better. At £9.99 a year 34% of consumers say they would be very likely to subscribe to a free next day delivery service.
All in all, delivery subscriptions are a great opportunity for retailers to please their customers whilst building on their brand loyalty.
E-commerce is doing well. Maybe even too well? Across the globe, carriers are having difficulties to keep up with the demand for delivery, especially during peak moments. For this reason, much of 2018 will be about spreading volumes and preventing Peak Season delays. Luckily this also involves better treatment of delivery drivers, the hidden heroes behind our new economy. Delivery subscriptions might be the first step away from unlimited free delivery, as we seek ways to improve working conditions. Might consumers even be willing to give up their privacy to make the life of delivery drivers easier by installing smart locks? Let’s find out this time next year!
Source: Paazl, “The 5 key trends in E-commerce Delivery for 2018“. (https://www.paazl.com/blog/the-5-key-trends-in-e-commerce-delivery-for-2018/) . Paazl, December 5, 2017.