Moving to same-day – making fast delivery work
Reconciling those three facts is quickly becoming the next hurdle for e-commerce managers across the country, as expectations about what constitutes as a good online shopping experience shift from week-long delivery windows to less than 24 hours.
An increasing number of retailers are responding by ditching the excuses and trying to work out how to best futureproof their online offers without breaking the bank, before competitors like Amazon arrive on our shores.
Earnings season has been flush with retail CEOs touting their progress on doing exactly that, from Super Retail Group’s circa $50 million investment in online to Woolworths’ Brad Banducci’s launch of Woolworths X and the promise to shareholders last week that grocery pick-up would be enabled nationwide by year’s end.
But for those shoppers unwilling to click then collect, which even in Super Retail Group’s case is more than 40 per cent of online shoppers, most retailers are still falling short of getting products to customers on the same day that they’re ordered.
How long before falling short becomes falling off the competitive cliff? Koala Mattress and fast fashion player Showpo both place a timeframe of one to three years on that eventuality.
“Most major players will have some sort of same-day offering within 12 months,” says Showpo operations manager Paul Waddy. “It’s become an expectation rather than an add-on or pleasant surprise.”
Showpo has moved to make free express shipping a baseline service for shoppers, and is currently in talks with providers to begin trialling same-day delivery services to Sydney and Melbourne, which Waddy says will likely begin in the next few months.
Koala delivers bulky items within a three-hour delivery window to every capital in Australia and is currently eyeing off one-two hour delivery in Sydney and Melbourne.
Founder Dany Milham believes it will be two to three years before most retailers are able to square the same-day equation, but thinks the arrival of Amazon will push forward everyone’s timetable.
“[Expectations] are increasingly dramatically. It’s very easy for brands to think that the old model of waiting weeks for products [is sufficient], but other companies are optimising to deliver really fast,” he says.
Woolies put a similar timeline on a variety of omnichannel initiatives last week, committing to three years for one-hour grocery delivery as well as drive-through services.
“What we really want to do is provide our customer with a multitude of options in how they shop with us, whether its in-store, pick-up at store, pick-up at the front of store, pick-up via drive-through or home delivery – at a designated time or express within one hour,” Banducci told shareholders last week.
“We have an aspiration to activate every one of those opportunities…for food in the short-term and longer term with food, drinks and general merchandise.”
Squaring the same-day equation: baseline or premium?
Strategies for approaching faster delivery appear to be as wide-ranging as the diversity of business models in the retail sector. For Petbarn owner Greencross and The Athlete’s Foot (TAF) operator RCG Corp, that’s coming in the form of store-based fulfilment, known as click-and-dispatch, rather than warehouse distribution.
RCG co-CEO Hilton Brett is the using store fulfilment to roll-out three-hour delivery in “most major population centres” across its TAF, Hype DC, Sketchers and Platypus brands. Click-and-dispatch represented 17 per cent of total digital sales for Skechers and Platypus in Q417, and will be rolled out across RCG’s entire network during FY18.
In fast fashion, where margins are thinnest, the debate is centred around whether same-day should be offered at a premium, or as a baseline. Showpo is currently eating the cost of baseline express delivery, but Waddy says that same-day has been quoted at twice as expensive.
“It’s quite expensive as a service, but if we offer it as a base service, maybe as a trial, then I’m sure we’d see an uplift in sales,” he says. “It may be that we start offering promotions – a special day of the week where your parcel gets upgraded to same-day for free.”
Koala benefits from its own internal software platform, which enables greater control and precision over the fulfilment process, and much higher margins – the cheapest mattress retails at $600– but delivery costs are much higher with bulky goods, a reality that’s left industry stalwarts like Anthony Scali and Gerry Harvey sceptical about high-speed service.
Milham argues that it’s a mistake to optimise the bottom line on delivery services, especially given that Amazon is renowned for never compromising on its customer offer, enabling it to capture swathes of share in the markets it enters.
“It all comes down to price, brands are constantly fighting for a better bottom line. They really don’t see the value proposition in increasing their costs by $20-30 [per delivery] just to get it to someone a day quicker when they’ve already made the purchase,” he says.
“It’s a tough one, but we really put it to the customer and try to optimise for the customer. That’s what Amazon do really well – they charge a premium for Prime, but it’s not much.
“If it is offered as premium it won’t be ‘traditional’ premium, which is your standard delivery, $80-$90 or $150 for two-flights of stairs, which is just ridiculous,” Milham continues.
A decrease in price
Milham says the price of delivery is coming down, with the consensus about the impact of Amazon’s entry being that faster services will become cheaper as the scale of online penetration increases.
Supply chain uberisation will also likely put downward pressure on delivery costs in the coming years, according to Waddy.
But outside of Sydney and Melbourne, things get much more difficult, particularly as two-thirds of Australia’s population live within a day’s drive of the two major cities.
Waddy reckons it will be difficult to justify offering same-day delivery outside of the south-eastern part of Australia, while Koala is doubling down on those areas with a prospective one-hour delivery offer.
“The logistics of warehouses in Perth and Adelaide is that you have to duplicate your inventory in those areas and that’s an enormous outlay,” he explains.
Milham concedes that it hasn’t been easy to get four-hour delivery up and running in Adelaide, Brisbane and particularly Perth, with boats being brought in and viewed as a safer option for transporting products to Western Australia.
Amazon, which has so far secured one distribution centre and is understood to be close to finalising one in Melbourne, will likely focus its offer in south-eastern Australia, at least initially.