When it comes to United States-based consumer preferences as they relate to home delivery shopping, one thing is clear: consumers want deliveries reaching their destination faster than they have in the past, and they view free shipping as a major benefit along with other shipping options, too.
Those are some of the takeaways from the recently-released "Home Delivery Shopping Survey" issued this week by global consulting firm AlixPartners. Data for this survey was based on feedback from 1,015 adult US consumers, across all regions, demographics, and income levels, with the survey’s objective being to understand consumers’ behaviors and preferences of ordering products from home for delivery.
Not surprisingly, the report noted that the impact of free shipping has a major impact on purchasing decisions for consumers. And the numbers bear that out, too, with 73% indicating it “greatly” impacts ordering decisions (in line with 75% in 2016 and up from 69% in 2014), with 23% noting it “somewhat” impacts ordering decisions, with another 4% that do not view it as a condsideration.
While the preference for free shipping remains firm, the maximum acceptable delivery time consumers are willing to accept in order to receive free shipping continues to trend down, which is not surprising given the ongoing uptick in e-commerce activity, coupled with consumers continually getting more comfortable shopping from their computer or mobile devices.
In 2018, the maximum allowable delivery time for free shipping was 4.1 days based on the survey’s findings, continuing a downward trend over the past few years, with 2016 at 4.8 days, 2014 at 5.0 days, and 2012 at 5.5 days.
“Back when we started doing this survey in 2012, we did not expect consumer preferences to change as rapidly as they have, and I would argue that maybe executives in the retail sector did not expect that either,” said Marc Iampieri, managing director at Alix Partners, in an interview. “It [the maximum allowable delivery time for free shipping] has gone down half a day every two years, or a quarter of a day every year. If you trend that out a few more years, all of the sudden everybody is expecting free shipping within two days. That poses physical limitations, and you cannot defy the laws of physics or the interstate highway system. What this means is that as consumers are expecting things faster, you have got to provide those products and distribution centers closer to where the population exists.”
That last point, he said, rings especially true as it relates to home delivery in places like the Northeast, he said, considering how that is a region, where, for example, cars and other commodities are not manufactured, but there are a lot of consumers there. And this, in turn, has led to values for commercial real estate facilities continuing to rise, and allows those goods to be close enough for a reasonable transportation costs to fulfill customer demand via last, or final, mile logistics.
What’s more, when global retail and logistics leaders set policies and consumers immediately accept them, which sets the standard for others to follow.
“There have been announcements by some large retail players in the U.S., stating they have changed their policy to more match one of their competitors,” said Iampieri. “It is pretty linear…but you cannot go across the country in two days without a lot of expenses, and that is clearly not built into the model in terms of what the freight costs are, especially for products less than $10. This provides a good opportunity for retailers to say ‘here is what I offer for immediate consumption,' and it is high volume and worth that prime real estate near major metropolitan areas. This is also an ‘endless aisle’ of everything else in retail, where you have to wait longer for things.”
This includes the key items being bought at the highest velocity, which, he said, is akin to the eye-level shelf in stores in the past, with those items able to be substituted for short-term shipping of 1-2 day or same-day, with everything else in more regional or centralized distribution centers. This approach, though, is quickly changing, and as logistics professionals plan out their network models, Iamperi said, adding that these are things that are becoming more important.
Another telling home delivery statistic in the survey highlighted how 58% of respondents completely or mostly agree that available shipping methods drive how they browse products online, which is up from 51% a year ago.
“As long as there are solutions and offerings out there that can satisfy this demand, I think the customer are going to reposition their mindsets to say as long this is standard and available and not cost-prohibitive, they are going to get accustomed to it,” said Iampieri. “How sustainable it is remains a valid question, but until the market leaders decide it is really becoming cost-prohibitive to do so and maybe that means going to one-day shipping, it becomes exponentially more expensive for the entire supply chain to be able to support that, and that is what makes it become a limiting factor.”
Iamperi said he was surprised by those results in that how many people make decisions about what they are going to buy initially based on the product being bough and shipped in a certain way while eliminating products that do not fall into that category.
While many of the items frequently purchased online such as clothing and shoes, books, food, cleaning supplies, and pet supplies, among others, have remained consistent over the years, Alix found that there has been increased interest in larger items like home furnishings and furniture, with the percentages of consumers looking to buy more of those types of goods online in the next 12 months heading up.
“This is a fundamental shift from the past when people said they would only buy things like food, clothes or electronics online and shipped to their homes, which has become the second coming of the milkman,” said Iampieri. “Furniture and white goods typically have always been delivered to homes…but now people are buying these things online sight unseen. The barrier of delivering big and bulky things to homes seems to have been broken.”
Among its final conclusions in the report, Alix noted that retailers and logistics providers that can accommodate customer home delivery shipping preferences will be better positioned to retain and gain market share of the fastest growing segment in retail commerce.
“The first thing to accept is that you cannot be everything to everyone,” said Iampieri. “You have got to be segmented in what you are offering so if you have something that has to be immediately replaced or you forgot about something you needed to buy and are short on time, you need something that is available now. That is one solution needed. There is also a solution needed for people who have become accustomed to very fast free shipping, with a limited selection for that and a logistics network that can support it. There is also the strategy of offering a very broad assortment or slow-moving items, which can be a different strategy with a longer lead time that allows people to match the selection you are going to offer to the service level and match appropriate costs for that, where it is all profitable business. Trying to offer everything to everyone at the very rapid two day or less free shipping is not a very profitable proposition. That is where the different players come in. Other than traditional parcel delivery, which is limited by size and weight, the final mile larger delivery has been challenging from a profitability standpoint. There are lots of different providers out there doing it, and there has been a changing of hands of different pieces of business doing home delivery of larger goods and it is tough. But it is a growing piece of the business and as this becomes more commonplace and customers embrace it where there becomes more density, you will find that those that make a commitment to being a player in that space have more market share in key regions and will start to move pricing up to where it can become more profitable. It is a fragmented industry now and it is tough to make money in it.”
