Retail

Retailers Still Fall Short of Online Shipping Promises


Surprise, surprise, retailers may be exaggerating their ability to hit shipping deadlines for online orders.

Take this past holiday season. The few retailers brave or cocky enough to promise Christmas delivery on orders up until midnight on Dec. 23 only got about two-thirds of those packages down the chimney in time, according to a new study by retail consultancy Kurt Salmon. Most retailers gave more conservative guidelines, setting cutoffs on Dec. 25 delivery a week to five days earlier. But that bunch wasn’t too reliable either, posting a success rate of only 80 percent.

The blame was about evenly split between the retailers and their shipping partners. The most common mistake was store employees failing to flag orders for rush delivery or turning them over to UPS (UPS) and FedEx (FDX) a day late. In short, customers understood the shipping deadlines better than some of the folks burning the midnight oil at stores and warehouses.

Missing delivery dates is bad customer service, but retail executives are more likely to be troubled by an entirely separate finding. Almost 30 percent of the holiday orders shipped from two or more places, according to the new study, and 10 percent of orders were filled from three or more locations. One doesn’t need to be a supply-chain wizard to realize that’s an expensive way to do business. Mike Gregory, a partner at Kurt Salmon, said shipping costs essentially double with each separate parcel that needs to be packed.

But retailers, of course, couldn’t help themselves. The holiday shopping economy was rife with discounts, and selling a lot of stuff at slim margins seemed better than holding the line on profit and missing out entirely. Plus, retail executives had been boasting for months about so-called omni-channel capabilities, in which stores are essentially de facto warehouses and ship goods as seamlessly as distribution centers.

“What we are seeing is a trend to leverage store inventory to ‘save the sale’ … when a fulfillment center or a single store might not have the inventory to support the entire order,” wrote Michelle Bogan, another Kurt Salmon partner. Just because a business can do something doesn’t necessarily mean it should. Bogan said this year retailers would be smart to measure more carefully how much free-shipping promises will weigh on margins. If shipping is going to require three packages from all over the country, maybe it should require a little extra time or money.

Jeff Bezos can afford to forgo a profit, but most retailers still aren’t Amazon (AMZN). That’s the whole problem.

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

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Companies Mentioned

  • UPS
    (United Parcel Service Inc)
    • $96.92 USD
    • -1.37
    • -1.41%
  • FDX
    (FedEx Corp)
    • $158.14 USD
    • -3.31
    • -2.09%
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