Despite the decline in gasoline prices, shipping costs are on the rise in 2015. Both UPS and FedEx increased rates across multiple service levels by an average of 4.9%. To make matters worse, the method used to calculate the cost of all packages sent by ground now relies on dimensional weight--or volume--in addition to regular weight.
These two factors alone are anticipated to drive an increase of anywhere between $500 million to $1 billion in domestic shipping spend next year. However, those estimates don’t take into account the multitude of different box sizes retailers must now use, nor the increased packing complexity required to optimize each order’s dimensional weight. For example, if you mindlessly grab the ubiquitous 12-by-12-by-12 box to ship a one-pound product, the dimensional weight increases to 11 pounds, which results in a 40% increase in the shipping expense.
This poses a serious problem for omnichannel retailers who have tried to stay competitive by integrating free delivery into their business models.
Reuters reported that online purchases in the United States with free delivery hit a high of 68% in the third quarter of 2014, up from 44 percent the previous year. And that’s only one side of the free shipping trend; UPS recently reported that 68% of consumers consider whether the retailer offers free returns when making an online purchase decision, and 62 percent of consumers have returned an item they bought online. By the end of January alone, UPS expects to handle more than 4 million return shipments.
These steadily increasing consumer expectations and shipping complications have retailers scrambling to figure out how the changes will affect their profit margins and sales and what they can do to minimize the impact. In order to soften the blow, many retailers are raising the minimums for free shipping; Amazon increased its minimum from $25 to $35, and other major retailers, like Best Buy and Gap, have done the same.
While these are understandable reactions in the short term, they simply won’t be sustainable in the long term. Omnichannel retailers need to acknowledge that attempting to compete on a price-only basis with the online-only retailer will just accelerate their demise.
So rather than raise free-shipping quotas or start charging for shipping, retailers must bump one feature in their omnichannel readiness to the top of the list: in-store pick-up.
The buy-online and pick-up in-store model is quickly becoming a popular fulfillment method for major retailers--and for good reason. Without shipping costs cutting into their margins, retailers improve their bottom line and increase customer satisfaction. Today’s omnichannel consumer wants the 24/7 convenience of online shopping with the speed, reliability, and trust of an in-store fulfilment experience. Offering online purchase with in-store pick-up is a way for retailers to give their customers the best of both worlds.
Encourage Purchases At The End Of The Shopping Journey
The advantages of buying online and picking up in-store don’t end with the money saved on shipping costs. Directing customers into the store to complete their transaction results in major net gains for retailers, as two out of every three consumers shop for additional items when picking up a product in store, according to a recent POPcodes survey. The opportunity to upsell is unique to the in-store experience, and when consumers have the option to test and try, they are much more likely to make incremental purchases.
Alleviate The Stress Of The Return Process
The dreaded online return process is another cost bypassed with in-store pick-up. There is an overwhelming consumer preference for returning products to physical stores over online shopping—no doubt a product of the desire for accessibility, immediacy, and time efficiency. With this recent rise in shipping costs, the aversion to online returns will only get worse. Physical store returns are better for retailers, too. While online returns are a dead-net cost with little recourse to save the sale, in a brick and mortar store a return is a potential new sale.
Build Customer Loyalty With Personalized In-Store Experiences
Omnichannel fulfillment provides more than just a boost to the bottom line. Buying online and picking up in-store enables retailers to more immediately answer customers’ needs and build a personal relationship that is impossible to develop behind a computer screen. The host of data that retailers now collect gives them valuable insight into what kind of shopping experience, environment, and service their consumers expect. In-store sales associates can use this data to create a highly personalized experience and build intimacy, inclusivity, and trust--all of which beget customer loyalty.
Retailers that have added buy online, pick-up in-store to their list of fulfillment options have seen tremendous gains. At NRF 2015, Macy’s announced a nearly $1 billion boost in sales from its in-store pick-up solution. Pure play e-retailers including Amazon, Warby Parker, and Zappos have all affirmed the value of the physical store with their recent expansions into brick and mortar, and many other e-retailers are following suit.
Expensive shipping costs will take a major toll on retailers who fail to find a more viable solution, and it looks to me—and many others—like in-store pick-up is the answer.
Gregg Aamoth is the co-founder and CEO of POPcodes, a cloud-based retail redemption solution that bridges the gap between the virtual and physical shopping experience. Prior to launching POPcodes, he spent more than 20 years in retail and financial systems leadership, including 10 years as vice president of customer marketing systems and privacy officer for Macy’s.