The growth of omnichannel is exceeding holiday delivery capacity
This year’s holidays fall in such a way to create a “perfect storm” for last minute delivery disaster. Christmas falls on a Sunday and Hanukkah falls the day before. Last minute shoppers conditioned by one and two day delivery could have a rude awakening in terms of getting gifts on time for their holidays. What works for rapid, guaranteed delivery in the rest of the year, may easily break down in the last minute holiday rush. The issue is not only Amazon’s amazing growth, but the rush to online by traditional bricks and mortar retailers. Will consumers’ increasing reliance on “quick ship” lead to further procrastination that leads to overload missed deliveries?
Why this is important: Two day delivery is the “new normal” established by Amazon Prime. But, even Amazon is pressing for holiday delivery which exceeds capacity. The challenge is customers don’t care … they want what they want when they want it.
Have customers been blinded by choice and convenience?
I’ve said it many times: “It’s a great time to be a consumer, a very tough time to be a retailer!” Consumers have come to EXPECT the convenience of delivery of any item purchased online within 2 days to their door! This kind of speed was unimaginable a decade ago. And, by paying a premium, there is now the expectation 1 day, or even 2 hour delivery!
‘Twas the night before Christmas, when all through the house
Not a creature was stirring, not even a mouse;
The stockings were hung by the chimney with care,
In hopes that 1 day shipping would be there;
The children were nestled all snug in their beds,
While promises of Amazon Prime danced in parents’ heads.
All this is happening as the National Retail Federation (NRF) is projecting that November-December ecommerce sales will be up 10 percent this year, accounting for as much as 18 percent of total holiday sales in the US. Not only are ecommerce volumes up across the board, customer expectations for delivery in the week BEFORE Christmas and Hanukkah are also at an all-time high. If 2 day shipping is now the norm, it should be possible to make purchases in the last week in time for guaranteed holiday delivery … right?
Expanding customer expectations – “Procrastinator Delight”
Last year’s late holiday deliveries had some snafus because of weather and capacity issues. The Wall Street Journal reported increasing 2015 late delivery difficulties due to weather and over extended systems. Both retailers and customers were very vocal on social media in voicing complaints about missed gifts. Were the misses simply a result of demand overload or poor planning?
The big players are aggressively planning for procrastinating buyers this year. Amazon is implementing “Procrastinator’s Delight” with delivery in 1 or 2 hours for Prime members in major cities! In keeping with its “Click and Collect” strategy, Walmart is offering customers in store pick of orders as late as 6pm on December 24th for orders placed the day before. These kinds of promotions might grab last minute shopper purchases, but they also fan the flames of consumer expectations for last minute, on time delivery for holiday!
A real question of how much Santa’s sleigh can hold this year
To be fair, the major retailers and delivery companies have been planning last week holiday deliveries for months. The US Postal Service has even planned for deliveries on Christmas Day in select cities.
Only one challenge – guaranteed, on time 1 and 2 day delivery requires seamless integration of the supply and logistics. And, that requires a LOT of airplanes to move the goods to a hub, which enables Santa’s elves to drive trucks to make the last mile delivery to your home.
There are now numerous reports of airplane pilots and truck drivers refusing to put in the overtime hours required to make the deliveries required by customers procrastinating to the last minute. Planes have only have finite physical space available for fulfilling holiday orders. The rising expectations and volumes may result in very limited room left on “Santa’s sleigh” to make those last minute deliveries expected by consumers this last week before Christmas.
Shipping is not “free” – there are real costs to procrastination
Shipping is not, and has never been “free”. Delivery requires infrastructure, transportation and people. And, shipping to the home is significantly more expensive than shipping in bulk to stores. It is estimated that the shipping costs of the “last mile” direct to your door is as much as 60% of the total delivery cost.
For the most part, retailers have been absorbing shipment costs as a way to remain competitive with ecommerce leaders like Amazon. Free shipment is now seen as a “cost of doing business” in order to acquire and retain omnichannel customer relationships that tend to be more profitable over time.
While many retailers can factor in shipping costs during the majority of the year, extra shipping costs for last minute procrastinators can drive up costs an additional 25% as result of more air freight and expedited delivery. While premium shipping fees can be collected in some cases, does it offset all the costs? And, if customers don’t get their gift on time, what is the cost in terms of damaged reputation?
Omnichannel is the new normal … Holidays are not “normal”
Distribution and logistics is the soft underbelly of omnichannel that does not get enough attention. While retailers can “sell it online”, if the customer does not receive the goods as expected at home (or in store) there is a major hit to brand confidence and trust.
Rising holiday volumes and customer expectations for guaranteed delivery are creating peak demand that exceeds holiday distribution capacity. The reality is that consumers don’t really care about retailer delivery problems. They just want what they want, when they want it … and the businesses that meet those demands are the ones that will generate trust and additional business.
Given the tremendous importance of on time delivery at increasing speed during the holidays, it is no wonder that Amazon is aggressively leasing their own boats, planes, and even piloting software to create Uber like booking on freight delivery trucks. Amazon is already in process of rewriting the ending to the popular Christmas poem:
He sprang to his sleigh
To his team gave a moan
And away they all flew
With the buzz of a drone
But, I heard him exclaim
As he flew out of sight
Happy Amazon to all
with on time Prime tonight