Among the questions retailers face today are what e-commerce strategies they should adopt in the wake of the COVID-29 pandemic and continuing supply chain crisis and other challenges to last-mile delivery, including what consumers really want regarding shipping times and methods.
At this point, consumers appear to be settling at just over three days of wait time on deliveries with free shipping, around the same amount of time they cited last year, according to recent research conducted by the international management consulting firm of AlixPartners. In 2012 the acceptable delivery time was five-and-a-half days, and it has been on a downward trajectory ever since.
“For a typical shipper with a multi-node regional network, one-day fulfillment plus two-day ground shipping is very achievable and, in many instances, potentially even cost-effective,” the company says. “As things stand, however, anything below three days exceeds the capability of most delivery networks to make free shipping economically viable even after raising the minimum spend threshold. This year’s result, then, is good news.”
There are several possible explanations for expected delivery time to not have dropped this year, according to the firm, including the revival of in-person shopping as recovery from the pandemic continues. “Consumer expectations may also have been modulated by rampant news coverage of congested supply chains and ports as well as overburdened delivery providers.”
However, more than 40% of the consumers who were surveyed by the company said they consider waiting four days or longer to be an unacceptable option.
The availability of free shipping remains critical when making the purchase decision for delivery (although the truth is that in reality there is no such thing as free shipping—the consumer pays for it one way or another). For example, almost three-fourths of the consumers surveyed by AlixPartners said free shipping has a great impact, with only 4% saying it was not a consideration.
“Consumers seemed to have been more willing to pay for delivery last year, but that deference to the difficulties of the pandemic seems to be over,” the firm explained.
In addition to having grown to expect free returns, consumers also have learned to take for granted same-day delivery as well. The demand for same-day deliveries has increased to 5.2% from 2.7% only five years ago, AlixPartners notes.
“This growth over the years shows that this is a service that consumers have come to expect, even though they are typically charged for it. Nowhere is this more obvious than in grocery orders. We found that consumers’ willingness to pay for same-day grocery delivery has edged up even from last year.”
One third of consumers in the company’s survey this year would pay $5 or $10 for same-day grocery delivery. A fifth would pay even for next-day delivery. On the other hand, the firm points out, on average over the last three years, increasing the same-day grocery delivery fee from $5 to $10 results in demand falling by approximately 50%.
That could be devastating to the online retail business because, while all categories have expectedly seen a dip in delivery from last year as consumers get increasingly comfortable with shopping in person, food retailers continue to benefit from habits developed during the height of pandemic lockdowns. For the second straight year, fresh and frozen groceries are the most popular product for home delivery.
BOPIS to the Rescue?
Slightly fewer number of consumers are using the Buy-Online-Pickup-In-Store (BOPIS) option than last year: 6.9% versus 7.6%. Consumers most utilize pickup options in cases of immediate need or due to shipping costs. “BOPIS, which often presents impulse-purchase opportunities for retailers, seems to be leveling off into a consistent use rate after having seen an initial uptick during COVID-19 store shutdowns.”
While its popularity among consumers may have declined, retailers continue to try to grow BOPIS because it helps boost sales at the same time it slashes delivery costs.
This also relates to dealing with the challenge of goods being returned, which has proven to be problematic for online retailers. The National Retail Federation says that when all the numbers are in, it expects $761 billion in products that were sold in the United States last year will have been returned by customers, which at 16.6%, is more than double 2019 returns levels as a percent of total retail sales. But there are definite opportunities to streamline returns logistics, AlixPartners claims.
“As shippers begin to make returns policies tougher in the face of escalating costs and dwindling warehouse space, the era of returns that would get shipped back for free with no questions asked may be ending,” the company states. “And consumers largely seem to be amenable. We found that as many as 60% of consumers are willing to drive to return an item in store, particularly if the alternative is paying for return shipping.”
Although the BOPIS usage growth rate flattened, it may be the next foot traffic and profit driver for retailers because of the supplemental sales it can generate during the same visit, the consultants suggest. “The challenge for retailers is still how to reprocess returns profitably once they do get back to the store.”
The global BOPIS market was $243.89 billion in 2021 and is expected to reach $703.18 billion by 2027, expanding with a double digit compound annual growth rate (CAGR) of 19.3% over the course of 2021 to 2027, according to ResearchAndMarkets.com, an international market research firm. That company is more upbeat about the future prospects of BOPIS than the consultants at AlixPartners.
“Besides no added shipping charges, no waiting for a long time for items to be delivered, quick services, in-stock insurance, and ease to tackle delivery errors that often arise with order fulfilment are paving the way for the market,” it explains. ResearchAndMarkets.com holds that an efficient BOPIS system will increase sales and customer loyalty while helping retailers stay competitive with other brick-and-mortar stores and online merchants.
“Overall, as per our analysis, it’s clear that BOPIS isn’t just a passing trend,” it predicts. “Globally, shoppers love it; most use it and intend to continue.”
Professors Michael Ketzenberg at Texas A&M University and M. Serkan Akturk at Clemson University agree. In the Harvard Business Review last year, they wrote that “BOPIS in particular can help retailers boost in-store sales while still providing the experience that today’s (and tomorrow’s) customers want.” That is because unlike other digital channels, BOPIS combines the advantages of digital shopping with encouraging customers to continue engaging with brick-and-mortar stores.
“Our research suggests that the BOPIS approach may be the key to helping retailers engage their customers—both online and in stores,” they wrote. “Customers are accustomed to online and omnichannel shopping experiences, and they are not going to go back. The good news is, leveraging digital solutions does not have to mean foregoing the advantages (both to the customer and to the retailer) of in-store shopping.”
