Can't someone please fix online shipping, already?
From a consumer perspective, Amazon is going to run away with all e-commerce unless the rest of the Web can figure out shipping. Molly Wood asks why online shipping is still such a tough nut to crack.
As I write this column, I'm on my seventh day of waiting for a Nordstrom package to arrive, and I am fuming. My order was received April 6, it didn't ship until three days ago, and it's still not here. And all I can think is, "I wish I'd ordered that through Amazon."
That's the sentence that should, and probably does, strike fear into the heart of any company doing e-commerce retail today. So why is Amazon still one of the few companies successfully executing free and timely shipping?
"Free shipping is the direction we're headed," says John Haber, CEO of Spend Management Experts, a company that finds spending inefficiencies in company supply chains -- mainly freight-related. "I don't know that it's sustainable for a lot of companies, but consumers expect it now."
Amazon is successful at shipping for obvious reasons, Haber says: scale, competitive pricing, and a phenomenal logistical organization. (That may, it seems only fair to point out, not always make it the nicest place to work.)
Can any other company pull off the same success? Shipping is probably the single biggest question facing an online retailer: Entrepreneur magazine has an entire online resource center dedicated to it; search for "ecommerce shipping" and you'll get dozens of articles about best practices, links to books, and hand-wringing discussions dating back to the very earliest days of online shopping.
Yet here we are, years later, and some sites have utterly nailed shipping -- Amazon, Zappos (even before it was owned by Amazon), Overstock.com, Buy.com. Last year, a site called STELLAservice ranked Costco.com as the fastest shipper among major retailers. Then there are the companies who haven't nailed it, like, according to the STELLAservice rankings, Kohl's, Sears, Target, and Wal-Mart.
Anecdotally, I can attest that stores with brick-and-mortar equivalents seem to be the worst offenders (Barnes & Noble being a notable exception). The Gap empire, of which I used to be the staunchest of supporters, has shipping practices so slow and aggravating that I've essentially given up shopping there. A fashion season can be over by the time my clothes arrive.
Plus, these stores increasingly rely so much on online ordering that they don't usually stock hard-to-find sizes or, say, long-length pants (ahem), or other small-volume items. That makes economic sense if the items are going to sit on shelves, but free shipping is only available at Banana Republic for orders over $50, and if I'm willing to accept a seven-to-nine business day shipping time -- and that's assuming the product ships close to the day I actually ordered it. I now buy my long jeans in-store at Anthropologie or Nordstrom instead, so suddenly, Banana's cost-saving stocking strategy has led to a lost customer, all over shipping fulfillment.
The most ridiculous example I can think of was my recent attempt to order party supplies for my son's fifth birthday. I went to Oriental Trading, which is the most amazing party supply repository ever, and I loaded up my cart with fabulous pirate party goodies. Then I went to check out, and shipping was $25 on my $70 order. (Yes, I was shipping a little on the late side, but it was $10 for standard, too!) Obviously, I abandoned my cart -- a very common behavior -- and went on to find almost the exact same items through Amazon with free, Prime, two-day shipping.
When the boxes arrived, they were from, you guessed it, Oriental Trading. Now, on the one hand, good job, OT, you made the sale in the end. But next time I'm party shopping, I'm thinking Amazon first, and that's bad for all small retailers in the long run.
Now, obviously, I know not every company can offer fast, free shipping. Zappos managed it even before Amazon bought it, but only, Haber says, because "they were very effective at securing a contract with UPS that was not an ordinary contract."
"The dilemma with free shipping is that you're making a bet that the increase in volume and sales is going to offset the shipping costs, and ultimately you can increase your profits by offering free shipping. UPS saw the opportunity that if Zappos was able to grow, then UPS was going to benefit from that. It's almost like they partnered -- they both made a bet."
Those bets are harder to make in a down economy, of course, and it won't get any easier if the U.S. Postal Service starts reduced delivery and starts closing area mail sorting facilities as early as May 21, as scheduled. Imagine what happens to Netflix DVD delivery, usually so reliably overnight, if the number of regional sorting facilities goes from 450 to 250, as proposed. (Congress will re-open debate on the proposed postal service legislation next week; expect a lot more discussion on this topic soon!)
So, what's a fledgling (or existing) e-commerce company to do? First, consider whether you can actually afford free shipping, even if you think you can't. Consider drop shipping, a method for selling items you don't actually hold in inventory. When an order is placed, the item comes directly from a manufacturer warehouse instead of your own inventory, theoretically reducing shipping costs. It won't make shipping faster, sadly, but it can make it cheaper.
Many companies do now offer graduated shipping, like Banana Republic's, where slow freight shipping is free. That's another option, although I think seven to nine business days is unacceptable for a lot of people -- at least it is for me. Five to seven days is a common standard and, at least until postal service reductions hit, items usually arrive sooner.
Offer free shipping just during high-volume sales times, like back-to-school or the holidays. And feel free to charge a less-discounted rate to make up the difference! "Organizations have an opportunity to raise the price of products," says Haber. "You're much more likely to see that than an increase in shipping." I agree. I know I'm going to pay more for shoes at Zappos, but I'm willing to because of the absolute lack of hassle.
And here's some final excellent advice from Haber, which I think can help all of us, company and consumer. He suggests asking postal outlets for something called "hybrid" delivery products. That's where UPS and FedEx pick up the packages and move them through their own networks until they get close to their destination. Then they funnel the shipments into the U.S. Postal Service network for so-called last-mile delivery.
"On the residential side, you can cut the cost of those types of shipments in half," he says. Apparently, FedEx and UPS charge a $2.75 surcharge for residential delivery, plus an additional $1.80 to deliver to certain ZIP codes (what!?), and a fuel surcharge. Boom, $10 a package. (This explains why it costs so much to ship with FedEx, doesn't it?) The postal service has none of those residential delivery charges, so a hybrid model potentially saves a business a lot in shipping charges.
"The thing about UPS and FedEx is they don't want people to use these hybrid products so they're not actively marketing them," Haber says. "People new to the shipping world don't even know that they have these options."
Well, now you do, and you're welcome. I hope you'll all start using hybrid models, offering free shipping promotions, and taking a good hard look at your supply chain issues. I didn't want to have to solve these problems for you, but as much as I love my Amazon Prime delivery, I do want a healthy competitive marketplace: it's good for everyone. So get on it, would you?