The e-retailer heads into the holiday shopping season behind a 30% increase in fulfillment spending and a widening net loss. North American sales increased ...
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Few retailers are likely able to afford expensive systems that custom-build packaging, but smaller merchants, too, are exploring ways to improve packaging and shipping efficiency. RibbedTee.com, which sells men's undershirts, in February 2012 implemented software that determines the lowest shipping rates and options available from the U.S. Postal Service, founder and CEO Mike Schwarz says. His goals were to break even on shipping—RibbedTee.com absorbs shipping costs on orders of $75 or more so it can offer consumers free shipping on sizable orders—and address growing consumer complaints about high shipping costs, he says.
Bags wouldn't do the trick because their weight reduction is largely invisible when using USPS Priority Mail, a shipping option that guarantees delivery in two to three days, because the USPS rounds up a package's weight, he says. A 1-pound, 2-ounce package costs the same to ship as a 2-pound package. "Even saving an ounce or two might only really affect a few orders," he says.
If RibbedTee.com can fit orders into them, Schwarz says Flat Rate or Regional Rate USPS boxes are usually his cheapest option among all shipping carriers. Those parcels ship for a flat fee up to 70 pounds based on the box size.
The software program the retailer chose, from SolvingMaze Ltd., determines in 1 to 1.5 seconds all shipping options for an order based on shipping rates for various boxes, delivery times and the weights and dimensions of shirts when folded and unfolded, which can change how they fit in a box, he says. SolvingMaze integrates with RibbedTee.com to show customers at checkout only the rates and delivery options that are available for their order, rather than asking them to pick from all options, he says. SolvingMaze can calculate rates for most shipping carriers, but RibbedTee only uses USPS.
Previously, a customer would, for example, order six packs of undershirts and select what for the customer was the cheapest available rate. But the retailer wouldn't realize until fulfilling the order that it could only fit five packs of those shirts in the corresponding box, Schwarz says. In that case, RibbedTee.com would instead send the order in a regular box by Priority Mail to make sure it still arrived in the right time frame. The retailer ate the few dollars of extra cost on those orders.
"Without the technology, we couldn't effectively offer USPS Flat or Regional Rate shipping services because we weren't certain if the content of the order would fit in the fixed-size cartons," Schwarz says. "By implementing this, we can take an order that would have a $17 shipping charge to the consumer and make it around $11."
As soon as SolvingMaze's calculations began appearing at the checkout, sales on RibbedTee.com went up, Schwarz says, because in most cases the displayed shipping costs went down. In four months, revenue grew 31% from the months before it launched the service. Transactions also grew 42%.
Schwarz credits RibbedTee.com's 50% overall sales growth in 2012 in part to the new, less expensive shipping options. Customers save an average of 2% on shipping fees, he says. He no longer hears complaints about high shipping costs.
Schwarz says offering simpler and cheaper shipping makes consumers more inclined to buy from RibbedTee.com, and that helps the e-retailer's profits. "It's less about cost savings for us but more about profitability and revenue," he says. "We immediately recognized more revenue and we attribute that to offering less shipping options."
In addition, because the retailer now uses mostly Flat Rate and Regional Rate boxes, which the USPS provides for free, it saves up to $300 a month on packaging materials, he says. SolvingMaze costs RibbedTee.com $16 per month, which is recouped in the profit from one average order of $50, he says. "With the growth we had immediately after implementing SolvingMaze, it's definitely paid for itself," he says.
The system has also increased efficiency among RibbedTee.com's warehouse staff. They now use the time previously devoted to choosing boxes, perhaps an hour per shift, for other tasks such as customer support or stock management, Schwarz says.
When chosen thoughtfully, reviewing and revising packaging materials and processes can cut costs, increase efficiency and boost sales.