DC Velocity - January 2016

Under pressure to keep up with Amazon. com Inc. on free overnight shipping, retailers are increasingly turning to third-party logistics service providers (3PLs) to compete through flexible pricing and creative marketing, according to a survey by consultancy Retail Systems Research (RSR) and Canadian IT giant Descartes Systems Group Inc.

In an effort to measure retailers’ home-delivery processes and concerns, the survey polled 83 retailers and then compared their responses with those of 1,015 consumers with respect to buyers’ expectations for shipping and delivery. The survey found that an “Amazon Effect” now in place for about 15 years has conditioned shoppers to expect speedy home delivery without paying a premium—or, in fact, anything—for the expedited shipping.

Until the 1990s, swift home delivery was generally offered only to buyers of big-ticket items like furniture and large appliances. Everyone else paid a hefty shipping and handling fee, then waited four to six weeks for the package to arrive in the mail. But since 2000, Amazon and other large e-commerce companies have expanded their market share by offering home delivery, next-day service, and easy returns, even when the high cost of those services means they run their retail operations at a net loss, according to RSR.

Most small and midsized retailers don’t have the resources to play that game. However, they must still satisfy customers who now expect free overnight service, RSR managing partners Nikki Baird and Paula Rosenblum wrote in the report, titled “Home Delivery: Retailers’ Brave New World.” Many retailers now find themselves in an unfamiliar place—the home delivery business—and are desperate to identify the best processes to manage e-commerce and omnichannel fulfillment demands. Outsourcing this task to the experts—logistics service providers (LSPs) and 3PLs—is a smart way to proceed, Baird and Rosenblum say.

Asked about their preferred methods
of delivering products to consumers, 54
percent of respondents said they shipped © 2015 Apex Industrial Technologies LLC. All rights reserved. Apex Supply Chain Technologies
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goods directly from the DC to con-
sumers using an LSP; 38 percent said
that consumers picked up items at
the store; 30 percent shipped from
stores using parcel carriers; and 26
percent used their own or dedicated
truck fleets, according to the survey.
Many retailers will offload deliv-
ery responsibility to their vendor
partners, despite being competitors
with those firms in an era when
vendors increasingly sell direct to
consumers. About 72 percent sur-
veyed said they expect during the
next three years to increase their
use of “drop-shipping,” where a
retailer does not hold inventory
but instead transfers orders and
shipment details to a manufacturer,
another retailer, or a wholesaler,
who then ships the goods to the
customer. About one-quarter said
their drop-shipping activity would
remain the same, while 4 percent
said it would decline.
Many retailers offer shoppers
such services as product assembly,
in-home installation, and remov-
al of packaging and old products.
However, the survey showed that
these initiatives miss the mark of
what consumers really want: low
prices and convenient delivery.

That may sound simple, but the survey results also exposed a gap between customer desires for fast home delivery and willingness to pay for it. Many retailers are fearful of losing customers by boosting shipping fees, but RSR suggested a different approach. Through clever marketing, companies could offer discounts for consumers who choose slower shipping