Groupon says its focus is on the bottom line, rather than top-line growth.
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Oriental Trading also is trying to cut costs in other areas so it can absorb carrier costs. For example, by encouraging consumers to place orders online, rather than by phone. “With online orders, we don’t have to have customer service taking phone calls manually,” Moen says. Although Oriental began as a catalog business, more than half of its sales are now online. The retailer says it’s working to drive more consumers to the web through marketing messages in its print materials, on its web site and in e-mails.
Oriental also is working to keep shipping costs low by using regional carriers. While the retailer won’t name the carriers its works with, Hodgson of Kewill says delivery services such as Eastern Connection on the East Coast and LoneStar Delivery and Process in the South offer competitive rates and flexibility in the regions they serve. “With regional carriers, you can do a pick-up at 11 p.m. and it can get there the next day if it’s within their region,” Hodgson says.
According to a recent survey by Kewill, which works with more than 250 online retailers, high-volume shippers are more likely to use regional carriers. 43% of retailers that shipped over 10,000 packages a day used a regional carrier, compared to 20% of retailers shipping 250 to 2,500 orders daily, the poll found. None of the retailers shipping under 250 packages a day used a regional carrier.
Pressure on small retailers
Absorbing shipping costs can be tougher for smaller e-retailers that often lack leverage in negotiations with carriers, says Boylan of Xpert Fulfillment. Boylan, whose company specializes in retailers that have relatively few SKUs, says he’s seeing more merchants with low order volumes increase their flat shipping rates, hike rates for specific categories that have been hit hardest by fuel surcharges, or raise the purchase amount that triggers free shipping.
Outsourcing fulfillment to companies like Xpert is one option for retailers struggling with high shipping costs. Another is the web-based application from RedRoller, which helps retailers compare prices across such major carriers as the U.S. Postal Service, DHL and FedEx. Merchants enter the origin, destination, package content, weight and a preferred delivery time and RedRoller provides the prices of various shipping options, says John Kruzan, vice president of business development. The fee for the service is based on volume and ranges from $14.95 for up to 150 orders per month to $89.95 for more than 1,000.
Beyond mixing and matching carriers, e-retailers can sack fuel surcharges by using the U.S. Postal Service, which doesn’t have any. “It never added them,” Hodgson says. While Hodgson says UPS, FedEx and DHL offer better tracking, and more easily integrate with warehouse systems from vendors such as RedPrarie and HighJump, he says USPS offers competitive prices, particularily on small packages.
However, retailers consider integration capabilities important. 39% of respondents to the Kewill survey who said they did not use the USPS cited the lack of an easy-to-use and maintain integrated service as the top reason. 33% blamed lack of order tracking.
Integration and tracking can be especially important during peak times, such as Christmas, when retailers have to get orders in boxes and out the door fast. Some online retailers, such as Zappos, use their ability to deliver last-minute orders in time for Christmas as a selling point. “We guarantee that if the free shipping option is chosen, the order will still arrive by Christmas Eve, even if it’s less than four to five business days away,” says CEO Tony Hsieh.
That puts pressure on competing online shoe retailers. And all e-retailers face the pressure of the transparency of the Internet, which applies also to shipping, as consumers can turn to sites like freeshipping.org to find the best shipping deals available on the web.