Revenue increased 11.9% in Q1 of 2015, to $17.26 billion compared with $15.42 billion in the year-ago period.
When products meet customers, delivery service sets retailers apart.
For all the efforts retailers put into merchandising and marketing—including e-commerce sites alive with video, zoom and Facebook Like buttons designed to engage shoppers, and new strategies for connecting with their mobile and social whereabouts—e-retailers still need to deliver the goods.
And as online retailing gets only more competitive with increasingly interactive web sites and new cross-channel shopping options, some retailers are turning to delivery services as another way to raise their level of customer service and the number of shopping options they offer customers. For some merchants, that means offering premium service options such as "white-glove" delivery treatment, where delivery personnel will bring items like computers, home appliances and furniture into a customer's home, set them up, and discard any packaging as well as the replaced items the customer no longer wants.
Delivery services like that can increase customer satisfaction, as can offering free or low-cost shipping. But it all comes at a price for e-retailers. Delivery costs typically account for about 8% of revenue, says Tim Sailor, principal of Navigo Consulting, a firm that advises retailers on shipping and delivery services. That means web retailers must work hard to get the best delivery deals, so they can offer the most appealing deals to consumers.
Dealing with rate hikes
To keep costs to a minimum and maintain overall competitive pricing for consumers, retailers often work with multiple delivery companies to provide the best mix of delivery windows and shipping rates. By coordinating deliveries between the U.S. Postal Service and national as well as regional carriers, for example, retailers can get the best mix of shipping zone rates and delivery times, experts say. In addition, merchants can work with outsourced fulfillment companies to use networks of warehouses located nearest their largest concentrations of customers, providing for the lowest delivery costs, Sailor says.
The cost of delivery services, meanwhile, keeps rising. The U.S. Postal Service raised its rates by an overall average of 1.74% effective April 17, though the average increase is limited to the Consumer Price Index as required by the federal Postal Law of 2006. The rate hikes do not affect parcels shipped via expedited Express Mail or Priority services.
The rate hikes, coming about two years since the last increases, range from a rise of 0.5% for single-piece first-class letters and cards to 3.8% for first-class parcels and 11.3% for standard mail parcels.
For standard ground Parcel Post, for example, the cost of shipping to zone one or two would rise to $5.10 for a 1-pound package and to $7.23 for a 5-pound package. Zones are based on the distance from the shipper to the final destination.
Zone 2 rate increases from the Postal Service generally have the largest impact on shippers, shipping experts say, because they increase costs for shipments that combine the shipping services of the Postal Service and either FedEx Corp. or UPS, each of which also announced annual average rate increases this year of about 4.9%.
As they deal with the rising costs of shipping, meanwhile, online retailers are offering a wider number of options in how customers can receive products.
Newegg Inc., a web-only retailer of computer gear and consumer electronics that has grown to $2.5 billion in sales since launching in 2001, recently introduced a new delivery option that lets some customers get their orders faster without paying for expedited home delivery. The service lets customers in southern California pick up products ordered online in as little as four hours from an online purchase at a warehouse in Industry, Calif.
Customers can wait for as long as seven days after purchase to pick up the products between 10 a.m. and 7 p.m. Pacific time, Monday through Friday.
The service is free, but does not apply to products purchased from the Newegg Marketplace, where other retailers sell to Newegg.com visitors, the retailer says.
"With the debut of will call at our California facility, we are giving both our business-to-business customers, many of whom are fulfilling mission-critical business needs, as well as all our valued Newegg.com customers, a way to get even more control over their online shopping experience, saving both money and time in the process," says Bernard Luthi, Newegg's vice president of marketing.
Food for thought
Big retail chains are also checking into new ways of delivering goods, including perishable items, to customers. Wal-Mart Stores Inc., the world's largest retailer, is testing home delivery of online orders of groceries, including fresh produce, meat, seafood, frozen goods, alcoholic beverages, household supplies, over-the-counter pharmacy items, and health and beauty products—all picked, packed and shipped from a Wal-Mart store, the company says.
Wal-Mart is testing its Walmart To Go grocery home delivery service through stores in San Jose, Calif., a spokesman says, declining to say what other markets Wal-Mart may also test for home delivery. The retailer is charging a base delivery fee of $5, though the fee can go up depending on the day or time of delivery.
Wal-Mart is not completely new to home delivery of groceries. In addition to Walmart To Go, it offers national delivery of a limited number of non-perishable packaged goods, such as breakfast cereals, snacks and candy, that shoppers can order online to have shipped from warehouses or drop shippers. And Wal-Mart's Asda supermarket chain in the U.K. provides home delivery of online grocery orders.
Other chains are going in the opposite direction, but still seeking more ways to get online orders to customers. Publix Super Markets Inc., a southeastern U.S. grocery chain, experimented with home delivery of online orders a few years ago, using its own trucks to deliver orders picked and packed from a central fulfillment center, but customers did not take to the service, a spokeswoman says.
But in an effort to try something similar, Publix recently began testing in-store pickup of online orders at two stores in Atlanta and one in Tampa, Fla.
"We're getting great feedback from customers," the spokeswoman says. "At least 80% return again to use the service."