Retailers are under the pump. COVID-19 has shifted a massive chunk of their businesses out of brick-and-mortar stores and into online channels. That would be fine, if it weren’t for the significantly worse margins most retailers make on online sales compared with instore sales. Much of this cost is driven by fulfilment, and to top it off, consumer expectations around delivery and returns are only increasing.
Across the board, retailers did an impressive job of pivoting and meeting customer demand online, but doing so increased their cost to serve, with delivery becoming a much bigger line item. Online sales climbed 44% year-on-year in January according to recent data from Australia Post. As that growth continues, retailers need to work harder than ever to understand and manage their profitability online.
At the same time, Australian consumers remain incredibly sensitive to price, which has led retailers to become increasingly compromising, with bigger, wider and more frequent discounts on their product ranges. Shoppers aren’t just price-sensitive about the products they buy, though – they also want them delivered at low cost too. Our latest research indicates that almost three-quarters (73%) of Australian shoppers say they are not willing to pay a premium for shipping — which explains why Amazon’s Prime offering has so far struggled to crack our market. Consumers want their deliveries to be cost-conscious and convenient.
Alternative deliveries
The boom in ecommerce sales over the last 12 months showed that consumers are open to new ways of shopping, including new delivery experiences. Throughout 2020, government restrictions meant most retailers had to offer contactless delivery or pick-up. The familiar concept of click and collect evolved to become contactless, and we saw new iterations of the idea, like drive-and-collect, in which staff deliver goods directly to a customers’ car.
We’ve found that 61% of shoppers are eager to try new delivery options, yet only 30% have been able to do so in the past year. This suggests an unfulfilled demand for alternative delivery solutions, and an opportunity for retailers to expand the fulfilment options available to consumers – which could help to reduce their overall delivery costs.
Convenience and cost are playing a significant role in the uptake of Click & Collect in Australia, with 59% of consumers who have used the service or another third-party pick-up in the past 12 months, saying it’s because they can collect their delivery while doing other things. For these shoppers collections are “trip-chained” alongside regular trips to the Post Office (66%), supermarket (44%) and shopping centre (32%). This is similar to the pick-up and drop-off (PUDO) delivery model that fulfils the majority of online orders in Scandinavia, which 66% of Australians said had the potential to improve deliveries here in Australia.
Sustainability
The PUDO model offers both economic and environmental benefits. Delivering parcels en masse to a PUDO location has a much lower carbon impact than individual home deliveries, with one recent study suggesting that this method reduces emissions by around two thirds compared to door-to-door deliveries.
Right now, most shoppers aren’t choosing their delivery option based on a sustainability concern – after all, the impact of delivery the method on emissions is not widely understood by shoppers. They don’t see any information about this at the checkout. However, with consumers generally reporting that they are increasingly motivated by sustainability in general, it’s only a matter of time until shopper consciousness peaks.
Currently, environmentally-friendly delivery options aren’t a major concern for Australian consumers, with 47% rating it as the least important aspect of delivery and returns options. However, younger shoppers continue to be more environmentally aware, with 31% of consumers aged 18-29 believing online shopping has a negative impact on the environment. With sustainability becoming a bigger driver of consumer behaviour, forward-thinking retailers are embracing ways to reduce their carbon footprint.
There are a number of sustainability-conscious processes which retailers can put in place to encourage consumers to shop with them. According to our research, 65% of shoppers said package-less returns would encourage them to purchase again with a retailer, and 55% said the same for printer-less returns.
Delivery and returns options have a major impact on consumer behaviour at every stage, from acquisition to checkout conversion to long-term loyalty. At a time when retailers are grappling with the costs of ecommerce, adopting alternative delivery and returns methods could offer increased cost control and improved customer choice, plus sustainability benefits. Having a forward-looking delivery and returns proposition is going to be crucial for retail success, especially when so much of their business is conducted online.
Justin Dery is CEO – Asia Pacific for Doddle.