Shipping and Return Shipping Fees Are Key to Retailers’ Growth
The 2015 holiday season offered more evidence that ecommerce is the engine driving retail growth. Overall retail sales increased just 3.3 percent from Halloween to January 4 and in-store traffic fell 6.4 percent in November and December, but online sales increased 13 percent during that time span. And, while early estimates for the holiday season, from Black Friday through Christmas Eve, found overall sales growing 7.9 percent, ecommerce sales over the same period rose 20 percent, aided by a 50-percent surge in smartphone transactions.
Even with all of its recent growth, ecommerce sales still comprise less than 10 percent of total U.S. retail revenue. Brick-and-mortar stores continue to account for the vast majority of sales, so retailers have good reason to focus on in-store sales. After all, that’s where the money is — right now.
The trend lines are unmistakable, though: online sales will keep growing for the foreseeable future, driven by mobile users and by increasing smartphone penetration. This, in turn, will increase the pressure on retailers to deliver more of these orders at no cost to their customers and minimum cost to themselves. Because up to 30 percent of all ecommerce orders are returned, depending on the category, online retailers will also have to find equitable ways to address the cost of shipping items back.
Shipping costs remain the leading cause of abandoned online carts, and free shipping is still the surest sales closer in that space. In fact, online consumers find free delivery extraordinarily appealing. Luckily for retailers, shoppers pay back sites that provide free shipping by increasing their order sizes by 30 percent on average.
Online shoppers aren’t just worried about the initial shipping costs, though; 88 percent of them cite free return shipping as an important factor in their purchase decisions. Fortunately, retailers that offer customer-friendly return options can expect to be rewarded for their generosity. Research shows that
41 percent of shoppers are more likely to place an online order if the store offers free returns, 95 percent say they’d shop again at an online retailer if they had a positive return experience.
Free return shipping clearly appeals to online shoppers, but most retailers have tightened such offers in recent years. Large chains can still assuage significant numbers of customers via policies that include free in-store exchanges and refunds. Aside from alerting shoppers to programs that provide free return shipping, though, there isn’t much (or much more) that retailers, especially smaller and/or online-only firms, can do to alleviate return shipping fees — for themselves or their customers.
Retailers are therefore concentrating primarily on the delivery side of online transactions — particularly the last mile, long considered the most expensive part. Amazon, Walmart, and others are testing airborne drones, although obstacles abound. Two Skype founders are trying a more earth-bound approach: delivery robots that can wheel up to two grocery bags of items to shoppers within about two miles of the merchant at 10 to 15 times less than the cost of current last-mile delivery alternatives. If successful, delivery robots could help smaller stores level the playing field with their larger brethren, at least locally.
As the retail industry grows more reliant on ecommerce, the success of individual retailers will depend, in strong measure, on their ability to satisfy consumers’ wishes: free deliveries, hassle-free returns, and, increasingly, mobile experiences. Stores that can figure out how to do all this affordably will gain and keep more customers (and stand a better chance to survive Amazon’s growing dominance). Stores that fail to give customers what they want will go the way of the dinosaur.
Tom Caporaso is the CEO of Clarus Commerce, a leader in ecommerce and subscription commerce solutions. Clarus Commerce powers FreeShipping.com, the pioneer of the pre-paid shipping and cashback movement.
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