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Business delivery: Logistics

With delivery prices rising across the board, fashion retailers and carriers alike will have to look for new ways to work together to keep costs down.

It’s a Thursday lunchtime, and 20-something Ella is browsing the internet for a new outfit to wear at the weekend.

Undecided, she picks three dresses and happily discovers that they can be delivered on Friday if she’s quick and completes the order before 2pm. Knowing she’ll be out of the house all day, Ella chooses to have the parcel sent to her local newsagent.

The next day, a text message arrives informing her that the items are ready for collection, so on Saturday morning she swings by and picks them up.

This scenario has become integral to the online shopping experience, with customers expecting a high level of convenience and flexibility when it comes to receiving their goods - and usually at a low price. Of course, this is great for the consumer, but behind this increasingly high-tech delivery chain, retailers are having to deal with rising delivery costs from couriers.

Investing in infrastructures to keep up with the boom in online orders - and at the same time tackling rising fuel costs - has meant carriers including Royal Mail and Yodel have increased prices in the past year.

Retailers will try to renegotiate prices, but if they’re not satisfied, some will ditch more costly carriers in favour of a cheaper partner.

“We’ve seen increases from delivery companies this year, and had the ability to move services on to a more competitive carrier to ensure we don’t pass this on to our customers,” says Missguided operations manager Brett Leadley-Kramer. Rather than shelling out £2.95 for each next-day delivery parcel with the old carrier, the women’s young fashion etailer has instead chosen to pay £2.50 with a rival carrier. Leadley-Kramer, who says the company is in the process of moving away from Royal Mail because of its price rises, estimates this will save it in the region of £2m a year.

But it’s important not to just choose couriers based on price, as service is equally important, advises Damian Scarlett, owner of ecommerce consultancy JellyWall. “However, at the end of the day, it’s about making money,” he adds, acknowledging the tough economic backdrop.

Footwear chain Schuh takes a different approach. Head of logistics Rob Bridle says that while the company commits to ship agreed parcel volumes, helping to keep “prices as keen as possible” - especially in cases where greater volumes are agreed - the company takes an understanding view of couriers raising prices.

“It would be unreasonable for us not to accept some price rises, as these are usually driven by rising fuel costs and other costs that are out of the control of carriers,” he explains.

Despite the price rises experienced by many, research from IT company Micros shows the number of fashion retailers offering free standard delivery actually rose from 14% in 2011 to 17% in 2012. Martin Green, ecommerce manager at Middlesbrough indie department store Psyche, says the store offers free shipping because “delivery costs for the customer are very competitive”. Put simply, if everyone else is doing it, it’s hard for others not to follow suit.

Bridle believes high delivery charges are a barrier to attracting and retaining shoppers who increasingly expect free or low-cost shipping. “It is possible - and I would even say mandatory - to offer exceptional service for free or at a low cost to the customer. This can be achieved by good control of other central costs, and by shipping enough volume to selected carriers to generate shared economies of scale for both parties.”

So even with price hikes by carriers, Bridle says the company absorbs any price rises into its central overhead costs.

One ardent critic of free and low-cost delivery is online retail commentator Leon Bailey-Green, who believes the days of retailers giving customers everything cheaper, quicker and more conveniently must come to an end in order for the current delivery model to remain viable. “Unfortunately, customers have been trained to expect free delivery over a certain price, which can typically be anything from £30 to £100,” he says. “We have to work towards communicating the value of delivery so the customer appreciates it. By driving down the cost of delivery, the networks don’t have the resources or incentives to invest, which is worse for the customer over the long term.”

However, it could be that while free delivery is used as a selling point to lure in customers, retailers are seeking ways of being more cost-effective when it comes to delivery prices. According to Micros, fewer fashion retailers offered free next-day delivery last year: just 1%, down from 6% in 2011. Figures also showed that only 25% of fashion retailers offered Saturday delivery for less than £5.99 in 2012, down from 83% in 2011.

What is apparent in the delivery sector is that fashion retailers are looking at ways to up their appeal to consumers by bringing greater flexibility to deliveries. Same-day orders, nominated-day delivery and local store pick-ups are a few of the options retailers are seeking to please customers with.

Home shopping and ecommerce giant Shop Direct Group, owner of Very and Littlewoods, is planning to roll out several added-value services, including one-hour timed delivery slots and same-day delivery on particular items. It is also working with its carriers to contact customers, by text or email, the day before delivery and on the day itself. “We believe that regular communication is crucial to ensuring world-class service when it comes to delivery,” says Shop Direct Group logistics director Jim Roebuck.

Missguided is planning to offer same-day delivery in Manchester from this month and is in talks to offer collections from designated locations. “It’s all down to convenience - customers no longer want to shop at their local high street. They want to [order when they] watch Coronation Street and get their order as quickly as possible.”

Schuh is following the likes of Fresh Channel, formerly Aurora Fashions, considered to be one of the early adopters of speedy delivery, by offering same-day delivery within 90 minutes, and same or next-day delivery within a selected one-hour time window, as the footwear business attempts to reach out even further to the multichannel consumer. “We will be enabling customers to shop using their local store’s inventory, and get items delivered at any time they choose the next day,” adds Bridle.

Many of the changes in delivery strategies have only happened because of the rise in innovative delivery services such as Collect+ and Shutl, which offer collection from corner shops and super-fast, same-day delivery respectively. Carriers, too, are upping their game. Royal Mail is investing “vast resources” this year, having introduced a service called Delivery to Neighbour and a tracked returns service to give customers more detail about returned items.

Home delivery specialist Hermes plans to extend drop-off service MyHermes ParcelShop from 1,500-plus local convenience stores to 3,000 locations by the end of the year, while DPD is investing £175m over the next three years to build a major parcel hub and 10 depots. To make its service even faster, Collect+ now allows customers to present order barcodes via smartphone when they’re collecting a parcel.

Retailers themselves are also adding value to the presentation of deliveries to recreate the ‘feelgood’ sentiment a customer gets when shopping in a physical store environment - even when offering it for free. Green says all of Psyche’s orders are shipped using “fully bespoke” packaging, including a high-quality, custom-designed box and custom-made tissue paper. “Our aim is to surprise and delight our customers,” he explains.

Innovation and added extras are all a massive draw for the consumer but this comes at a cost, and it’s likely that in future, carrier prices will go up again. So will retailers continue to take a hit on margins? Perhaps not. Leadley-Kramer admits that if carriers all increased their charges, Missguided “would have to pass this on to the customer”.

Bailey-Green believes the delivery model has to change. “Prices will go up,” he says. “How long it takes for retailers and delivery networks to wake up, who knows?”

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