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Eight issues facing online retailers

17 October 2018

Retail, it would be fair to say, is a sector that is going through a period of fairly seismic upheaval at the moment, says Andy Mulcahy, Strategy and Insight Director, IMRG. But the impact of the rate of change in retail is not just restricted to the high street; there are multiple factors exerting pressure on retailers to find cost-savings and optimise performance across all areas of the business.

The impact on the high street has been well publicised – it has been headline news throughout 2018 as some of the largest retailers around put out profit warnings, close stores and consider CVAs.

Earlier this year, IMRG launched a Delivery Retail Advisory Board, featuring senior logistics members from 14 large UK retailers. One of the main purposes of this group is to identify the key issues and challenges facing industry; below, in no particular order, are the eight issues that we identified together.

The changing shape of peak

In recent years – and since 2014 especially – the sales peaks leading up to Christmas have changed dramatically. Black Friday has served to pull a huge portion of sales activity forward, which has at times led to operational disruption due to the sheer volume going through the network over a short period. 

The challenges of volume are compounded by the general trend toward faster delivery, with some able to offer same-day and many offering next-day, often for free if a basket threshold is exceeded. 

As an event – and characteristically an online one – Black Friday is showing little sign of slowing; in 2017, online sales growth on the day itself was up 11.7%. How to manage the increasing demands of such scale is an ongoing question.

Customer experience by 2023

A logical consequence of delivery getting faster is an impact on customer service. Over the past two years, in the delivery index we run with MetaPack we’ve tracked a fall in the percentage of online orders arriving on-time. 

How can the service promise be sustained; is it becoming ‘next-day as standard, same-day as vision’? What role do alternative delivery channels have to play in this and to what extent is real-time, accurate in-transit information part of the overall solution?

Use of delivery subscription services is also becoming more common, where a customer pays a one-off charge to access free delivery for a year. Many are accessing the viability of these models.

Cost to serve 

Broadly speaking, businesses have two options for increasing revenue – either make more sales, which isn’t always easy to do, or reduce costs through increasing efficiency in various areas of the supply of their services.

The consistent challenge with the second option is around how to lower costs without sacrificing – indeed, hopefully improving – quality and efficiency.

The sustainability of ‘gig economy’ usage in logistics may be an important factor here – given the impact of current minimum wage challenges going through the courts, plus resource challenges associated with Brexit.

Supply chain automation offers great potential; the question is where to focus that investment to maximise benefit to the business.

Great ideas / flights of fancy 

We live in an age in which things that once seemed the stuff of sci-fi are actually finding their way into everyday use.

Some of these – such as the move toward autonomous vehicles – have obvious applications within retail (which isn’t to say their use on public roads at great scale is imminent). Others, such as drones, are being talked up as having great potential for delivery but questions remain around how airspace will be governed; retail deliveries might not be very high in the pecking order for drone usage.

The challenge is to separate genuine innovations from fads – looking at the real and practical implications and benefits of new industry ideas.

Sustainability 

Following the Blue Planet II series, retailers have come under mounting pressure from government, media and the general public to reduce plastic and cardboard waste.

There is some anecdotal evidence that, generally speaking, shoppers are becoming more conscientious around environmental issues; but sustainability is a broad topic that covers many areas of business operations.

In a visible – and, therefore, most immediate – sense, packaging would seem to be a core area of focus. But there is also the emissions contributions that delivery vans make in urban areas, the potential environmental (not to mention financial) benefits of order consolidation and collaboration and (again) the future move toward autonomous vehicles. 

How to make returns pay

The average rate of returns for online retailers has been going up over the past year or so; just under one-in-four online retail orders were returned in the second quarter of 2018. For some, particularly fashion retailers, the rate can be significantly higher.

However – it’s inaccurate to view returns as an inconvenience. They are a natural consequence of distance trading and the customer has a legal right to return any items they purchase, within reason. Expecting them to go away is not realistic.

The focus instead should be around understanding the role returns might play in customer acquisition and retention, plus how to optimise efficiency – in relation to processing and disposal, but also increasing speed of return to inventory and dealing with refunds.

Click and collect 

Home delivery is still the primary option for the majority of online orders, but one of the most notable shifts in recent years has been the rise in popularity of click and collect. For multichannel retailers, the option now accounts for over one-in-three online orders.

With UK high streets under such pressure, there is a sense that click and collect may be part of the solution – it’s arguably been the only solution that has brought online and offline together at scale over the past few years.

What role this – and other alternative delivery channels – have to play is an interesting point of debate; as is the question over whether it will still be accurate to refer to click and collect as an ‘alternative’ channel if its popularity continues to grow. 

Cross-border expansion

As mentioned in the introduction, these issues are in no particular order – so Brexit being last is not a statement on its insignificance.  

For online retailers, every possible country represents a potential market. Yet the attractiveness of expanding into such markets is hugely related to technical detail such as duties and tariffs.

In a global climate where trade barriers are being erected, understanding what the cross-border opportunity is would appear to be undergoing no small degree of change.

 
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