Passing the parcel: why delivery and returns are retailers' biggest profit battleground
Last mile is a major talking point in retail right now. While many retailers have taken huge steps forward in their omni-channel customer engagement strategies, the growing number of channels and touchpoints has created new logistical challenges in terms of how, where and how quickly converted sales are fulfilled.
From a customer perspective, there has never been a better choice of delivery options; in a major city now it’s entirely possible to get an item sent to your home in under an hour, or collected in-store in less than 30 minutes. For the retailer, however, reacting to the continually rising bar on delivery can dramatically impact margins.
Speed versus cost: a balancing act
Some retailers, like Amazon, can afford to run fulfilment at a loss. However, for most businesses, it is a careful balancing act between satisfying customer needs and making the greatest feasible profit on sales. Something that most are yet to perfect, if you consider that retailers’ last mile margins are set to decrease by 1.5% by 2025, according to OC&C Strategy Consultants.
To counteract the growing cost of fulfilling online orders, many omni-channel retailers are developing their ship-from-store capabilities, or putting renewed effort into click-and-collect. However, store inventory needs to be managed carefully, in order to stop ecommerce customers impacting direct in-store sales opportunities – particularly in the case of click-and-collect.
Customers choose click-and-collect because it is convenient – and therefore the collection part needs to be as seamless as the ordering part. In addition, store staff need to consider how to use the extra footfall generated by click-and-collect as an opportunity to cross-sell and upsell.
This underlines the need for retail organisations to adopt an omni-channel approach in their delivery strategy – both in terms of a real-time view of inventory across all channels, to make the most profitable fulfilment decision, and satisfying the needs of online customers when they reach the store to pick up a purchase.
Returns: the silent profit drainer
Even for retailers that have optimised their omni-channel last mile strategy, the profitability challenge does not end there. A sale is not a sale until the customer decides to keep it, and returns cost UK retailers £60 billion each year, according to Clear Returns.
However, a returned item is not necessarily a lost opportunity for retail businesses. If it comes from a relatively new customer, often it will be a sign that they are exploring the brand, and trying to find the right product for their size or style.
Additionally, if the customer comes into the store to return an item, it presents a new sales opportunity in its own right; data from click-and-collect specialist Doddle shows that 48% of shoppers will buy something else at the same time as taking something back.
The challenge for retailers is to look at the most profitable way to manage items coming back into their stock pool. This goes back to what we were previously saying about having a real-time view of inventory across channels – if retailers can accurately assess where stock needs to be, based on demand, it increases the chance of returned items being re-sold at full price.
Maximising margin in the last mile
As rising consumer expectations and intense market competition continue to squeeze margins on fulfilment and returns, retailers need to look to their technology infrastructure to maximise profitability in the last mile.
Effectively balancing supply and demand means having an accurate, up-to-the minute and holistic view of inventory – including latest orders and returned stock.
Only with this real-time picture can decisions be made that ensure product is despatched from the most profitable location, without jeopardising other sales in that channel, and that any items coming back into the stock pool are leveraged as quickly as possible. This way, the most sales are converted and fulfilled in a cost-effective manner, to maximise retailer margins and ensure satisfied customers.