E-tailers Compete on Turnaround Time, Shipping Speed This Holiday

Amid a public fight for Thanksgiving weekend foot traffic, retailers are also battling behind the scenes to prepare for peak-season e-commerce orders. Forrester predicts that holiday e-commerce sales will increase 13 percent to $89 billion this year and competition is likely to be fierce. With free shipping increasingly expected, the differentiator this holiday season may come down to shipping speed. In fact, according to a new Kurt Salmon survey of 100 retail brands, retailers will reduce their processing and shipping time frames for multi-item orders by almost two days this holiday season.

On average, it took retailers eight days to get orders into the hands of shoppers last year, with 3.4 days to process and 4.6 days to ship. This year, retailers are looking to cut down processing time by one day, and shipping time by nearly one day, to bring the total order fulfillment time down to 6.1 days.

Heavy competition drives shipping race
When asked how competitive shipping and fulfillment practices could harm holiday sales, free and faster shipping are top concerns. A plurality of retailers (36 percent) say they are worried about competitors offering free shipping and 18 percent are worried they'll lose sales to competitors offering next-day and same-day delivery. The free shipping war is on among several big-box stores, with Target recently announcing free shipping for the rest of the season with no minimum purchase, and already 76 percent of retailers are offering some form of free shipping off peak, compared to 35 percent last year.

"It's high stakes during the holidays, and retailers are playing a game of 'anything you can do, I can do better' when it comes to fulfillment," said Steve Osburn, retail strategist at Kurt Salmon. "While it's great for consumers looking for deals and convenience, it's proving challenging for retailers who are already contending with constrained margins from a heavy promotional environment. We've seen retailers making progress to improve and enhance fulfillment practices to avoid the issues we saw in 2013, but every retailer can't be Amazon."

Retailers investing to improve peak-season delivery
Retailers took action in 2014 in response to holiday season fulfillment issues, an increase in online orders and changing consumer expectations for shipping. When asked about priority investments to improve peak-season delivery, retailers say that their top focus was on shipping (25 percent) and technology/information (24 percent). Retailers are investing in free and faster shipping in order to capture more e-commerce sales in a competitive market. On the technology side, retailers noted that they were investing in online inventory and shipping management systems, distribution software, and improved forecasting systems.

Retailers are committed to last-minute order promises
Last-minute orders for guaranteed Christmas delivery were a thorn in the side of many retailers in 2013. Retailers say that about 15 percent of orders arrived late in 2013, and cite several reasons for delays. Twenty-six percent of retailers say that deliveries of last-minute gifts were thwarted by retailers failing to upgrade shipping when items left the distribution center late. Another 25 percent say they did not have the inventory in stock. Forty-five percent of retailers point the finger at the shippers or the shipping method, with 24 percent saying delays were the carriers' fault and 21 percent citing issues with a non-guaranteed shipping method such as SmartPost and SurePost.

Despite these challenges, retailers will be even more aggressive with efforts to capture last-minute e-commerce sales this season, with 26 percent, up from 17 percent in 2013, saying their cut-off to guarantee Christmas delivery will be one to three days before Christmas. Nearly 50 percent of retailers will guarantee delivery by Christmas for orders placed by December 20, compared to 37 percent in 2013. Overall, retailers plan to push back the last order date for guaranteed Christmas arrival on average from 6.9 days (around December 18) to 5.5 days (between December 19 and 20). Retailers are also aiming to reduce the number of late orders to just 8 percent this year.

Consumers appear to be slightly wary: A separate Kurt Salmon survey of 1,893 consumers found that 40 percent of shoppers are generally confident that their orders will arrive by the promised date, but another 32 percent say that their confidence level depends on the retailer.

"After a few years of spending spikes early and late in the season, retailers are making ambitious promises in order to capture last-minute online sales," Osburn said. "But if you compare average delivery times with last-minute promises, there is a gap that retailers will need to account for."

Kurt Salmon surveyed over 100 retailers with e-commerce sites and revenues over $750 million (73 percent with $1 billion and up; 27 percent with between $750 million and $1 billion) about their peak-season shipping and fulfillment plans.
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