The State Of Ecommerce Order Fulfillment & Shipping

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The State of EcommerceOrder Fulfillment & Shipping September 2017

IntroductionOnline sellers have a problem.They are now being faced with increasingly-demanding, and, at times, unrealistic expectationsfrom online buyers to deliver orders with unprecedented speed for little to no added cost.eFulfillment Service’s The State of Ecommerce Order Fulfillment & Shipping report combinesdata compiled from online merchants we service along with data from other recent studies,and aims to disseminate the facts as they relate consumer purchasing and shipping behavior.A significant gap currently exists between the delivery speed and costs desired by onlinebuyers, and the actual speed and costs offered from most online sellers.This gap, in part, has been created by what is commonly referred to as the “Amazon effect,” athreatening expectation among Amazon shoppers for fast, free delivery, which has extendedbeyond the Amazon microcosm to the entire ecommerce landscape.Online sellers have a choice.Sellers may decide to join the ranks of Amazon in hopes of winning multiple laps in what isoften a race to the bottom. And for some sellers, this strategy will reap its benefits.For others, a more fruitful approach is to distinguish their products and brand to a point thatshipping speed and cost becomes less of a concern, and more of an afterthought.CONTENTS: IntroductionA State of BoomBuyer BehaviorPrice SensitivityCost ManagementKey Takeaways2

SECTION 1: A STATE OF BOOMECOMMERCESPENDINGAcross the globe, the growth ofecommerce is far outpacing thegrowth of overall retail sales, andwill reach 4 trillion by 2020.Worldwide Ecommerce Spending in the TrillionsIncludes all products and services ordered online via any device, regardless of payment or order fulfillment method.Excludes travel and event tickets.Feature 5Asia-PacificDue to an expanding middle class,wider access to internet, as well as amore substantial logistical infrastructure,Asia-Pacific will remain the largestecommerce market for years to come.North AmericaNorth America will continue toremain the world’s second largestecommerce market, and will continueto see double-digit growth for theforeseeable future.3By 2020, ecommerce sales willaccount for nearly 15% of totalretail spending worldwide.Source: r/1014369

U.S. Order Volume SECTION 1: A STATE OF BOOMDecreasedMERCHANTGROWTH19%We surveyed hundreds of ecommercesellers for which we provide warehousing& fulfillment services, asking how theirorder volume this year has compared tolast year. Here are the results.Increased36%Remainedthe Same45%International Order Volume36%of our clients have seen a growth in U.S.order volume this year. The primaryreasons for this growth include increased ad spend,presence on more selling platforms (eg - Jet, Walmart),and better product sourcing and market testing.17%of our clients have seen growth ininternational order volume this year. Whilethe U.S. remains a top focus for many of our clients, themajority do plan to focus more heavily on internationalmarkets in 2018.4Decreased6%Increased17%Remainedthe Same77%Source: eFulfillment Service client survey

Purchases on Marketplaces vs. Retail Websites SECTION 2: BUYER BEHAVIORMARKETPLACEAPPEALConsumers are now purchasing via onlinemarketplaces more than ever before, andthe buying behavior of online shoppersdiffers greatly between marketplaces andretailer s Share vs. Other MarketplacesMarketplace ShoppersNearly half of all online purchases are now made on amarketplace, with Amazon dominating this category. Ascompared to retailer shoppers, those on marketplaces tendto shop online more frequently and, on average, spend 79more per year than on retailer websites.Retailer ShoppersEtsy & others2%eBay18%Amazon80%As compared to marketplace shoppers, retailer shoppersare less likely to research multiple brands before makingan online purchase, with loyal retailer shoppers mostfrequently purchasing apparel, footwear and relatedaccessories.5Source:

Percentage of Americans with a Prime AccountSECTION 2: BUYER BEHAVIORAMAZON’SDOMINANCEMore than three quarters of Americansshop on Amazon. Perhaps a morestaggering statistic is that over halfof U.S. consumers now have a Primeaccount.Purchased onefor Prime Day4%No PrimeAccountHave PrimeAccount49%47%50%of consumers shop on Amazon atleast once a month. Home goodsand electronics are currently the most popularitems purchased via the marketplace, withgroceries expected to skyrocket given Amazon’srecent acquisition of Whole Foods.24%of consumers never shop onAmazon, with college-aged malesbeing the group that is least likely to shop on themarketplace. With Amazon’s new Instant Pickupservice, this is a demographic the giant is clearlytargeting.6SELLER QUOTE:“All retailers are now competing againstAmazon’s free shipping.”Source: urvey-data/

Why Do Consumers Shop on Amazon?SECTION 2: BUYER BEHAVIORCONVENIENCEFACTORWith millions of products, freetwo-day shipping, a rangeof devices, as well as theirAmazonFresh and new InstantPickup program, it’s easy to seewhy “convenience” is the no. 1reason people shop on Amazon.37% of consumerscurrently own anAmazon device.7Roughly as many people shop onAmazon for the fast shipping asthey do for the low .com/blog/post/amazon-consumer-survey-data/

Which is More Important to Consumers?SECTION 3: PRICE SENSITIVITYPRICE VS.SPEEDWe asked our clients which ismore important to their ecommercecustomers, fast shipping or cheapshipping? The results: they want both.ShippingSpeed50%ShippingPriceFeature 550%SpeedTo address a growing expectation for fastshipping, we are seeing sellers introduce newshipping options into their ecommerce checkoutprocess, including more air and priority options,which tend to be offered at a flat shipping rate.PriceTo meet the demand for inexpensive shipping,sellers are adding low-cost ship options (FirstClass, SmartPost, international consolidators),as well as re-examining their packaging optionsto minimize actual and dimensional weights.8SELLER QUOTE:“Cost is a concern - seems that customershave higher expectations for lower fees.”Source: eFulfillment Service client survey

Where Online Retailers Are Falling ShortWhat retailersare offeringWhatconsumerswantAn Opportunity for RetailersThere is a significant gap between the number of consumers thatwant same-day shipping and the number of online retailers that offerit. However, because consumers will pay little for same-day delivery,9retailers have an opportunity to better meet consumer expectations inother ways, including specifying the expected time for delivery, andusing shipping options that allow for weekend delivery.Source:

What Do Consumers Consider to be Fast Shipping?SECTION 3: PRICE SENSITIVITYWHAT ISFAST?Online shoppers not only wantfree shipping, they also have agrowing expectation of what theyconsider to be fast shipping.89%of consumers say 1-2 daydelivery is fast. This isdown from two years ago when 92% ofonline shoppers considered 1-2 days tobe fast.42%of consumers say 3-4 daydelivery is fast. Two yearsago, 63% considered this time frame tobe fast, a clear indicator that deliveryexpectations are increasing amongonline buyers.10SELLER QUOTE:“Consumers are not willing to pay for one or twoday shipping, but that is what they expect.”Source: 016-holiday-survey-results.pdf

SECTION 3: PRICE SENSITIVITYHow Do Consumers Choose to Ship?THE AMAZONEFFECTWhile ecommerce sellers areseeing a growing demand amongtheir customers for fast shipping,they are also discovering that fewof them are willing to pay for it.Feature 525% of consumers arewilling to pay a premium forsame-day delivery. 3.00 is the most thatthey’re willing to pay for it.11A Small NicheIs it Sustainable?Just two percent of consumers are willing topay more than 3.00 for same-day delivery.For most consumers, they continue to shipvia the cheapest form of home deliverypossible.By continuing to create unrealisticshipping expectations among consumers,many analysts question whether thetrending ecommerce model is sustainableamong online retailers, including Amazon.Source: McKinsey&Company Parcel Delivery The Future of Last Mile

SECTION 3: PRICE SENSITIVITYHow Do Consumers Qualify for Free Shipping?CLOSINGTHE SALENine out of 10 consumers say thatfree shipping is the number oneincentive that would make themshop online more often.Feature 5Free Shipping Still RulesWhile the importance of free shipping hasactually declined over the past four years,74% of ecommerce buyers say it remainsthe most important option at checkout.Multi-Unit SalesBecause the added margin ofmulti-unit sales typically outweighsthe added expense, onlineretailers are wise to implementfree shipping thresholds toencourage customers to addmore itesm to their baskets.1294% of online shoppers have takensome type of action to qualify forfree shipping.Source: shopper-lp.html

SECTION 4: COST MANAGEMENTThe Mostly Costly Aspects of Order FulfillmentMINIMIZINGCOSTSWith low fees expected fromconsumers, ecommerce sellersmust do everything they can tominimize costly order fulfillment.Feature 5Order SplitsRetailers must effectively manage data andinventory to avoid the costly situation of splittingorders between multiple distribution points.Low Ship VelocityOnline retailers must also effectively managelabor costs as order volume fluctuates to avoidunnecessarily adding to their cost of goods sold.High Number of ReturnsTo avoid costly returns, retailers must provide buyerswith detailed product images, descriptions and othertools, and ensure orders are shipped on time.13For online retailers, the average cost to fulfillan order is 70% of the average order value.Source: 0Fulfillment%20Final%20Report.pdf

Where Do Online Retailers Ship From?OnewarehouseMultiplestoresOnestoreSuppliers /manufacturersMultiplewarehousesDrop shippers /3PLsMulti-Point DistributionTo lower costs and help meet customer expectations, retailers utilize avariety of approaches to order fulfillment, including shipping from one ormore of their own stores or warehouses, or outsourcing to a 3PL. Because14order splits result in costly order fulfillment, and because of the addedinbound logistical and carrying costs of splitting inventory, distributingfrom multiple locations does not make sense for all ecommerce sellers.Source:

SECTION 4: COST MANAGEMENTHow Do Online Retailers Handle Order Spikes?MANAGINGPEAKSManaging order spikes is criticalfor any ecommerce fulfillmentwarehouse. Here are the mostcommon ways that businessesdeal with peak times.Feature 5Temporary StaffHiring temporary staff is the most common wayto manage order spikes. With too many temps,this can become counter-productive given thetraining and management involved.Paid OvertimeWhile overtime allows retailers andfulfillment houses to cope with spikesmore easily, it is a costly approach thatcan lead to increased errors and stafffatigue.15Reallocated StaffAll Part of the PuzzleEmployee cross-training and reallocationis another commonly-used approach tomanaging spikes. This tactic requiresskilled staff, and for certain departmentsto be slow while others are at peak.As we’ve shown, consumers have growingexpectations for fast, low-cost delivery.Mis-managing peak times leads to delaysand added costs, which means solving thispuzzle will allow you to better meet thoseexpectations.Source: t%20Report.pdf

Managing the Last Mile of Ecommerce DeliveryS ECTION 4: COST MANAGEMENTTHE COSTLYLAST MILEGiven increasingly-demandingexpectations surrounding orderfulfillment, many companies arevying to become front-runners inthe costly last mile of delivery.The Present166 yearsDriverlessVehicles4 years2 yearsDronesRobotsAlgorithms &AnalyticsOne of the most widely-used approaches tolast-mile optimization involves FedEx & UPSpartnering with the U.S. Postal Service. Soon,technology will dramatically disrupt the last mile.PresentShort-Term FutureLonger-Term FutureUnpredictabilityAlgorithms & analytics are currently beingused by companies like Uber & Google toconnect couriers with merchants. Thesealgorithms will continue to improve to allowboth traditional carriers and new entrantsto provide more options for consumers.Within the next 2-5 years, new technologieswill emerge, including more widespreaduse of drones and automated deliveryvehicles. The primary barrier of thesemethods, along with driverless vehicles (5 years away) will be regulatory constraints.While consumers expect faster, moreflexible order fulfillment, they have a lowappetite for added costs. This, coupled withnew technologies, market entrants, andbusiness models, make for an uncertainfuture with the last mile of delivery.Dense UrbanAreasSuburban AreasSmall, UncrowdedCommunitiesRemoteLocationsSource: on-innovation-last-mile-delivery.pdf

Key Takeaways 1. The strength of a brand.In just a couple of years, ecommerce will account for 15% of total retail spending, andthis upward trend will continue. While marketplaces like Amazon, eBay and Walmart cansignificantly add to a merchant’s bottom line, it’s important that ecommerce sellers buildtheir brand and a loyal customer base, one that looks beyond price alone.2. Something’s gotta give.Amazon lost over 7 billion on shipping last year. Until more pressure is put on Amazonto make a profit in all areas of their business, the “Amazon effect” will continue to spread,creating what is often an unrealistic expectation for shipping costs and speeds, that whichwill not be sustainable without new technologies to help reduce delivery costs.3. Stay focused; stay open-minded.While consumer expecatations may only become more demdanding, a variety of newmarket entrants will continue to reshape how ecommerce packages arrive to their finaldestination. These new entrants, along with the creativity and technologies they bring, willoffer new opportunities for sellers to meet growing expectations. In the interim, ecommerceretails should work to become more lean and flexible, while focusing on differentiators thathelp to make price less significant in the eyes of their customers.17WHO WE ARE:eFulfillment Service is a familyowned and operated companyproviding dependablewarehousing and orderfulfillment services for onlinesellers of all sizes.As a result of our flexibility,personalized service and17 years of ecommerceexperience, we’re proud toservice hundreds of merchantswho put their trust in us to helpdelight their valued

Feature 5 By 2020, ecommerce sales will account for nearly 15% of total retail spending worldwide. Worldwide Ecommerce Spending in the Trillions Includes all products and services ordered online via any device, regardless of payment or order fulfillment method. Excludes travel and event tickets. ECOMMERCE SPENDING Across the globe, the growth of