Politics At The Post Office Is Hiding A Problem For Retailers: Holiday Shipping Costs Are Going Way Up
By: Richard Kestenbaum (Forbes)
There's politics and then there's the real world. It's the real world that's more likely to bite your backside.
S E E D E D C O N T E N T
Political turmoil at the US Postal Service about mailed-in ballots for the upcoming presidential election is getting a lot of attention. But the real issues that affect consumers and shipping aren't being focused on. Both Fedex and UPS have told their customers that increases and surcharges are coming for holiday and the postal service deficits mean their rates will increase too. The implications of those increases for retailers and brands are big and painful.
In the 2019 holiday season, both FedEx and UPS had significant declines in their on-time performance and their price increase announcements are undoubtedly how they plan to pay for the additional resources they need to handle the load. The upcoming holiday season will certainly have the highest ecommerce sales ever. That will strain the established shipping systems and that's what's driving the shipping cost increases. The question now is what how retailers and brands need to deal with the increased costs.
Who's Most At Risk
The retailers most at risk will be those who have a high percentage of ecommerce penetration and a low average order value (AOV). Those are the ones who have the highest shipping cost as a percent of value of products purchased. According to Wells Fargo research, of the large public retailers, those are Urban Outfitters, Designer Brands Inc. (DSW), Gap Stores, Dick's Sporting Goods, L Brands and Carter's. For these retailers and many others, the increases could not have come at a worse time because the pandemic has virtually eliminated their ability to average down the shipping costs by focusing on in-store sales. They have to develop other strategies to deal with higher shipping costs. One retailer who will have less of a problem is Amazon AMZN . As it brings its shipping more and more in-house, it is less subject to inceases from FedEx and UPS. Amazon's growing competitive advantage on shipping compounds the challenge for other retailers.
Now Is The Time To Plan
Retailers that don't put plans in place now will find that it's too late when holiday shopping comes. They need to focus on a number of strategies.
Raise average order value. The problem is, raising AOV is one of the hardest things to do in retail. But software has been developed that lets retailers do it in a more sophisticated way that's helpful to consumers. For example, a company called FindMine can analyze a product in a consumer's cart, use machine learning to understand the fashion sensibility of the product and make recommendations for outfits and accessories that match, including prioritizing items that come from the same distribution center. It's not just for fashion, it works for furniture, home decor and beauty products as well. Using sophisticated strategies for upselling, retailers can raise the AOV to offset the increase in shipping costs.
But it's not enough just to focus on moving more products. Retailers also need to think about where the products are. Getting a consumer to buy something extra that gets shipped from a separate warehouse is good but it doesn't address the problem of increased shipping costs. Recommendations need to take into account whether the products are in the same distribution center in order to get maximum advantage by putting two or more products in the same shipping box.
Get the consumer to do the work. If retailers can get consumers to pick up in-store or curbside, it solves the increased shipping cost issue almost entirely. Finding new and creative locations for pickup and giving consumers incentives to pickup rather than clicking home delivery addresses the issue head on.
The holy grail of retail, especially fashion retail, is reducing returns and that is what will really solve the problem. Getting consumers enough product information, especially about fit, will make it far more likely that products will stick once delivered to consumers. Retailers forced to give free delivery and return shipping for competitive reasons are particularly challenged to reduce returns but it's the ultimate solution to the shipping problem.
One More Woe
Problems keep piling on retailers. But the increase cost from shippers can be mitigated if its dealt with early enough and now is the time to act. There isn't one solution, flexible and creative approaches are necessary. Shipping costs alone won't drive retailers out of business. But so often, what drives retailer into bankruptcy is the combination of problems occurring simultaneously that overwhelms them. Retailers that act now have the chance to avoid letting shipping costs be one more nick and cut that works against them.
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Who didn't see this coming? A phony political crisis over vote by mail really isn't the most important thing.
Once the USPS is bankrupt people in rural America will have to pay the true cost of getting things delivered way out in the sticks and they are not going to like it one bit. It is good we can pay bills online because it will cost $15 to mail a check!
The Post Office doesnt have to turn a profit any more than the Marines do or the fire dept. does. It is a service, not a business.
Since when do you support corporate welfare?
The main benefactor of the US Postal Service being financially unsustainable is Amazon, UPS, and FEDEX- who are moving their merchandise at lower private contracted rates with the US Postal Service.
I am sure the big three competitors thank you for the continued tax payer support.
Throw more money at it. I am sure that will make the problem go away.