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Rewriting the rules of pass the parcel

Etailers are reconsidering their long-term delivery options following the Royal Mail strikes, as rival cariiers ramp up their services.

Despite Royal Mail and its staff reaching an agreement over the recent postal strikes, the impact on retailers continues to be felt as the strikes forced retailers to reconsider their e-fulfilment strategies for the long term.

Companies using Royal Mail, many of them independents, have had to move to alternative carriers or face disappointing their customers. While the new services are often more expensive, e-fulfilment experts predict a permanent trend towards a less risky multi-carrier approach in future.

An ICM poll of 2,000 consumers commissioned by Drapers’ sister title Retail Week, found that 50% of those questioned would shop less online and by mail order in the run-up to Christmas. In a separate poll, etail industry body Interactive Media in Retail Group (IMRG) found that 60% of firms had made alternative arrangements during the strikes and IMRG’s director of operations David Smith says that many smaller fashion companies will look for long-term alternatives to Royal Mail.

“Larger companies often have different delivery options already but smaller firms may now want alternatives even if they don’t move away from Royal Mail completely,” he says.

As a result, other carries have been quick to expand their market presence during the strikes. Home Delivery Network, for example, has brought forward the announcement of its HDN Lite service, intended to be a competitor to Royal Mail’s equivalent second class service. This is already being used by some of its clients but will become generally available in January. It allows delivery of items up to 2kg and guarantees deliveries within 72 hours, with a tracking facility.

DPD, which won IMRG’s Innovation in Delivery award in October, along with sister company Interlink Express, has introduced texting and emailing of delivery dates to customers. Shoppers can then arrange to be at home, reply to change the date or select a ‘deliver to neighbour’ option.

Hermes, too, has benefited from the strike. The carrier’s myhermes.co.uk service, aimed at individuals and small and medium enterprises (SMEs), has seen an increase in volume of 200-300% as a result of the strikes. Chief executive Carole Woodhead believes that many retailers may switch all or part of their business permanently. “The strikes have an impact in the confidence people have in Royal Mail and many companies will stay with us if they find us more convenient,” she says.

Jonathan Middleton, head of group development at UK Mail, agrees that many retailers may switch provider. “I think there will be a large element of retention if retailers receive a good service,” he says.

Cross-sector research carried out by retail software firm Maginus would appear to back this up. It found that 63% of retailers who have changed to new carriers during the strike intended to continue to use them in the long term.

But for smaller businesses, the more expensive alternatives to Royal Mail could hit profits hard. Shopping comparison site Kelkoo found that the average packet price for some retailers could rise from £1.90 to £4.80 if they switched all their business to alternative carriers such as Royal Mail’s sister operationa Parcleforce, which has been unaffected by the strikes.

If consumers lose confidence in Royal Mail and retailers are unable to pass on any of the extra costs there could be serious consequences, according to Andy Moss, founder of fashion search website ShopStyle.co.uk.

“Companies may have to swallow courier costs which, as Christmas trade picks up could impact profits in a major way. That, coupled with a slow economy, could push many small online shops to the brink of closure,” he says.

In the long-term, however, smaller retailers could use Royal Mail for standard deliveries but offer premium or timed services through other service providers – something that customers might be willing to pay extra for. Technology which automatically chooses the best carrier for each delivery based on a matrix of factors such as postcode, service standard and size, is now within the scope of smaller companies.

Software firm MetaPack runs a system which enables companies to do this and, as in the case of Royal Mail during the strike, switch off a particular supplier when necessary. Larger users include etail giant Asos, department stores John Lewis and House of Frase,r and JD Sports but it is also accessible for small companies who pay a registration fee of £100 and then extra for each delivery label printed – these cost “a few pence” each according to MetaPack’s sales director Steve Vass.

SMEs taking on the software are given a choice of carriers with whom they negotiate rates independently. “They could choose however many they want but in each case the retailer can approach the carrier knowing there will be no problems with IT integration,” Vass explains.

John Lewis says that a multi-carrier approach has helped it to escape disruption to its service. Simon Waine, head of multi-channel fulfilment at the department store, explains: “Aside from providing us with the optimum service and choice, it means that we have a high degree of contingency. If Royal Mail is affected by strikes we won’t put any parcels through them.”

But even without technology, retailers also have the option of following a dual sourcing policy, as was the case at Kent-based indie Bagga Menswear. Director Dave Lomax says: “We have a secondary courier active at all times, so we can switch between the two with no notice.”

When deciding whether to use Royal Mail in the future retailers will have to balance the lower costs of doing so against the commercial opportunities of offering customers new services by using other carriers, such as tracking of deliveries.

Mark Hewitt, chief executive of e-fulfilment firm iForce, which works with both small and large retailers, says: “If the retailer’s cost model doesn’t allow them to pay more for deliveries they will return to Royal Mail. But a silver lining of the strikes is that some people who haven’t looked at diversifying the delivery options they offer customers will be able to introduce a hugely enhanced service.”

However, many large retailers will stay with Royal Mail for some services, says Sean Fahey, project director of Clipper Logistics, which works for multiple retailers such as Asda, Tesco, Urban Outfitters and department store Harvey Nichols. “Very few of our clients have all their eggs in one basket. Royal Mail is very good at lightweight parcels below 5kg and so far our clients are sticking with them,” he says.

Royal Mail itself is confident of its future, but admits that it has to adapt its business model. “Although our customers might not have moved their post wholesale many have done so with parcels and packets and we will have to work hard to get that back,” says a spokesman. “The goods fulfilment sector is very important to us and we need to modernise the business to respond to the changing postal market, where packet volumes are increasing but the number of letters sent is declining. We need to ensure that we deliver a high quality of service and develop new products that meet our customers’ needs into the future,” the company says.

The lasting legacy of the strike on e-fulfilment will probably only become apparent in the next few months but what seems certain is that many companies will never view this part of their business in quite the same way. 

With or without Royal Mail

Even those retailers who do not use Royal Mail believe there are long term consequences for the whole of online fashion retailing following the strike action.

Designer mini chain Matches uses DHL for its online orders but has experienced an increase in customers worried about deliveries, according to ecommerce director Sandrine Deveaux. “We believe customer confidence regarding online retail will be impacted for Christmas,” she says. “In order to re-assure our customers regarding our delivery deadline, we are looking at alternatives such as same day delivery as well as launching special offers such as free delivery in the UK to stimulate demand.”

Footwear retailer Schuh’s deliveries have continued as normal through Parcelforce. But managing director Colin Temple says: “Everyone is affected by something like this because it puts a little bit of doubt in the consumer’s mind. It also makes you think a little bit more as a business about spreading future risk.”

Aberdeen-based indie Xile is another Parcelforce user and marketing manager Murray Ainslie says: “The recent strike just re-iterates how important it is for e-tailers to ensure they’re working with reliable delivery agents.”

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