holiday 2015 shipping trends by fbic global retail tech · consumers! should ship well! ahead of!...

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DECEMBER 22, 2015

DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved.

HOLIDAY 2015

2015 HOLIDAY SHIPPING: FASTER!

F A S T E R !!!

D E B O R A H W E I N S W I G E x e c u t i v e D i r e c t o r – H e a d o f G l o b a l R e t a i l & T e c h n o l o g y F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9 C N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6

• Shipping has gone from being a humdrum part of e-‐commerce to a major selling point, with free and faster shipping driving sales

• Amazon has been a shipping leader, initially offering free two-‐day shipping and now 1-‐2 hour shipping for its Prime members

• Several startups have emerged to offer same-‐day shipping services in partnership with large retailers

• Free shipping has ballooned this year, which has led to delays, and some retailers can no longer deliver via standard shipping by the holidays

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DECEMBER 22, 2015


HOLIDAY 2015

HOLIDAY SHIPPING 2015: FASTER, FASTER! EXECUTIVE SUMMARY

Shipping was once seen as the mundane task of getting the gift from the retailer to the recipient, however shipping is increasingly becoming a competitive advantage for retailers in winning consumer’s dollars. Shipping trends have evolved as e-‐commerce and mobile commerce have become mainstream. First, there was free shipping, offered by Amazon and other retailers. Since then, shipping speeds have, and continue, accelerate, largely owing to the efforts of Amazon, Google, and several startups.

Whereas Amazon’s Prime service helped raise the bar to make free two-‐day shipping the norm, Amazon topped itself again with the introduction of one-‐day and even one-‐hour shipping via its Prime Now service. Given the company’s visible advocacy and testing of drone delivery, perhaps products can be delivered in under an hour in the future.

Other retailers have followed suit, and many now offer one-‐day shipping. Several startups have launched with services to help the giants offer same-‐day shipping as well, helping large retailers with established distribution channels move faster.

Still, consumers have needed to order holiday gifts earlier this year, since an abundance of free shipping has led to shippers facing delays due to the unprecedented volume of packages, and some retailers have experienced early cutoffs for sending packages via ordinary shipping methods before the holidays. Finally, consumers seeking to avoid shipping altogether can purchase gift cards or use e-‐gifting as means of zapping their gifts down the Internet, arriving instantaneously in the recipient’s e-‐mailbox.

SHIPPING HITTING GROWING PAINS IN 2015

Data surrounding the Thanksgiving holiday suggest that this year’s holiday season remains on track to meet estimates, perhaps owing to consumers’ positive response to ever-‐faster shipping methods. Still, the healthy supply of free shipping may be too much of a good thing, leading to delays at shipping companies.

Free Shipping Day, falling on December 18 this year, was created in 2008 as part of an effort to extend the online shopping season and counter consumer fears that they would not receive their goods when ordering late in the holiday season. This year, around 985 retailers agreed to participate in the day, offering free shipping with no minimum purchase and guaranteed delivery by December 24, although there are numerous other retailers offering the similar guarantees at later dates.

Given the robust shopper activity this holiday season, getting gifts to their intended recipients on time is a major concern for both retailers and consumers. The table below shows the major shippers’ deadlines for getting parcels to their intended recipients by December 24 (only the US Postal Service plans to deliver on December 25).

This year, around 985 retailers agreed to participate in Free Shipping Day, offering free shipping with no minimum purchase and guaranteed delivery by December 24,

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DECEMBER 22, 2015


HOLIDAY 2015 Figure 1. Overview of Shipping Deadlines for Major Shippers

US Postal Service FedEx UPS Smartpost—12/14 Ground—12/16 Express Saver—12/21 2-‐Day—12/22 Overnight—12/23 Same Day—12/25

3-‐Day Select—12/18 2-‐Day Air—12/22 Next-‐Day Air—12/23

Standard Mail (Incl. Christmas Cards)—12/15 First Class Mail—12/19 Priority Mail—12/12 Priority Express Mail—12/23

Source: Company reports Consumers should ship well ahead of these deadlines, if possible, since shipping times have been elongated this year. A survey by consulting firm Kurt Salmon found that shipping times were 20% longer for orders placed on Cyber Monday this year, owing to an increase in free (but slower) shipping offers. According to the study, 90% of retailers are offering free shipping this year, up from 78% last year.

Indeed, at press time, Jet.com announced that it could no longer guarantee delivery by the holidays, explaining that, “this year’s holiday gift rush has led to nationwide shipping delays that have affected many of our fulfillment partners.”

The graphic shows a calendar of shipping deadlines by shipper and retailer:

Source: PC Magazine

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DECEMBER 22, 2015


HOLIDAY 2015 The table below illustrates how common one-‐ and two-‐day shipping, free shipping and in-‐store pickup services are this holiday season. Nearly all the retailers listed also offer gift cards, and many offer e-‐gifting, for those shoppers who may have waited too long to get gifts to their intended recipients on time.

Figure 2. Overview of Shipping Methods for Selected Retailers

Same-‐Day Next-‐Day Two-‐Day 3–4 Days Standard Free In-‐Store E-‐Gift Amazon X X X X X X Best Buy X X X X X X Coach X X X X X X Costco X X Cards Gap X X X X X X Cards JCPenney X X X X X X Jet.com X X X Kmart X X X X X Cards Kohl’s X X X X X X Cards Macy’s X X X X X X Nordstrom X X X X X Cards Sears X X X X X X Cards Staples X X X Cards Target X X X X X X X Cards Source: Company websites

While most of the retailers listed above do not directly offer same-‐day shipping themselves, many are able to provide the service by collaborating with startups. For example, Best Buy, Macy’s, Walgreens, Williams-‐Sonoma and others are using Deliv for same-‐day delivery.

Early retailer nervousness about hitting this year’s targets likely led many to offer free shipping, according to comScore, which is depicted in the graph below. In the figure we see that there is a much higher quantity of free shipping offered in 2015 as compared to 2012–2014.

Figure 3. Percentage of Desktop e-‐Commerce Transactions with Free Shipping

Source: comScore e-‐Commerce Measurement. Based on corresponding shopping days in 2014.

35%

40%

45%

50%

55%

60%

65%

70%

75%

2-‐Nov-‐15 16-‐Nov-‐15 30-‐Nov-‐15 14-‐Dec-‐15 28-‐Dec-‐15

2012 2013 2014 2015

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DECEMBER 22, 2015


HOLIDAY 2015 Amazon Prime Now: Setting the Standard in Shipping

In February 2005, Amazon launched Amazon Prime, initially offering unlimited, free two-‐day shipping or $3.99 one-‐day shipping to members paying an annual fee of $79 per year (this fee was raised to $99 in March 2014). In December 2014, Amazon announced the Amazon Prime Now app, offering free two-‐hour delivery and one-‐hour delivery for $7.99 in Manhattan between 6 a.m. and midnight, seven days a week.

The figure below illustrates the steady improvement in Amazon’s shipping times, assuming five days at the time of the company’s IPO in 1997 through two hours for Amazon Prime Now in 2015.

Figure 4. Amazon Shipping Times (Days—Log Scale)

Source: Company reports

Amazon launched Prime Day on July 15, 2015, to celebrate its 20th anniversary, offering discounted Prime memberships for $67. While the company did not provide specific sales figures, it did say that customers ordered 34.4 million items in Prime-‐eligible categories on Prime Day, surpassing Black Friday 2014, and that it had signed up hundreds of thousands of new members.

Amazon Prime Air Drones: Ready to Cut Delivery Time Further?

In December 2013, Amazon announced that it was testing drones for residential package delivery. In an August 2015 interview with The Telegraph, Amazon CEO Jeff Bezos commented that residential delivery drones are still “years” away—largely due to regulatory issues—but that someday they will be “as common as seeing a mail truck.” And in December 2015, the company released a slick video narrated by former Top Gear host Jeremy Clarkson that shows a delivery drone zeroing in on a special temporary landing pad.

0.01

0.1

1

10

1997 2005 2015

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DECEMBER 22, 2015


HOLIDAY 2015

Source: Amazon

In order to have greater control and accelerate the delivery process, Amazon is reportedly leasing a fleet of 20 Boeing 767s for use in its own air-‐cargo service.

Google: The Dark Horse

Google has been quietly offering its own version of Amazon Prime, called Google Express, which offers next-‐day shipping in New York, San Francisco, Chicago, Boston, Washington, DC, and Southern California, in exchange for an annual fee of $95. Google has signed up several retailers for its delivery program, including Costco, Target and Walgreens. Participating retailers in Manhattan are listed below.

Figure 5. Selected Google Express Customers (in Manhattan)

1-‐800 Flowers.com Adorama Barnes & Noble Bluemercury Costco Fairway

Guitar Center L’Occitane Paragon Sports Payless ShoeSource PetSmart REI

Staples Sur La Table Target The Vitamin Shoppe Toys "R" Us / Babies "R" Us Walgreens

Source: Company reports

Jet.com and Its Smart Cart

Jet.com made a splash with its debut on July 21, 2015, offering warehouse-‐club prices in an e-‐commerce environment. The company initially sought to earn profits solely on membership fees. However, it later realized that it could offer acceptable profitability to its investors even without charging fees, partially thanks to the capabilities of its Smart Cart. Accordingly, Jet.com dropped its membership fee in October 2015.

The company’s shipping policies are fairly standard—two-‐day shipping on “everyday essentials,” two-‐ to five-‐day shipping on other items, and free shipping on orders over $35. What is different about Jet.com is its Smart Cart, which relies on shipping and pricing algorithms developed with the help of former financial programmers from Wall Street. In a Smart Cart, the prices of the items depend on what other items are in the cart. As a

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DECEMBER 22, 2015


HOLIDAY 2015 customer adds more items to her cart, the number of permutations for optimizing shipping and pricing multiply, as a fulfillment partner can offer better pricing for higher quantities. Any savings are then passed on to the customer.

Jet.com has an appealingly simple, uncluttered website, largely because it offers only a fraction of the number of products that Amazon does: Jet is targeting 10 million products by the end of the year, whereas Amazon sold 253 million different items as of August 2014, according to ExportX.

Startups: Coming to the Rescue?

Given the shipping challenges described above, several startups are focusing on providing timely delivery. There are three major delivery services that are currently impacting the retail environment:

Curbside is an app that enables consumers to purchase and pick up items from nearby stores either in-‐store in a designated area or by the side of the curb. Customers include Best Buy, CVS Pharmacy and Target.

DoorDash provides local delivery services to its small-‐business customers in 22 major markets in North America. The company, launched in a dorm room at Stanford University and backed by Y-‐Combinator, initially started as a food-‐delivery service and now provides delivery services to small businesses.

Deliv is a crowdsourced, same-‐day delivery service that enables retailers to offer their customers a same-‐day delivery option. Deliv has partnered with nearly 100 national and regional omni-‐channel retailers, as well as the four largest mall operators in the US, which together manage close to 800 malls across the country. Customers number about 4,000 and include Best Buy, Bloomingdale’s, Express, Kohl’s, Macy’s, Neiman Marcus, Pottery Barn, Walgreens and Williams-‐Sonoma. In June 2015, Deliv acquired WeDeliver, which provided same-‐day delivery services to local merchants in Chicago, and in November 2015, it acquired same-‐day delivery company Zipments, based in New York City.

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DECEMBER 22, 2015


HOLIDAY 2015 Postmates offers an urban logistics and on-‐demand delivery platform that connects customers with local couriers, who purchase and deliver goods from any restaurant or store in a city. Customers include Apple, Etsy, 7-‐Eleven, Starbucks and Walgreens.

Consumers Are Willing to Pay for Same-‐Day, Expedited Delivery

A 2014 PwC survey found that more than half of those polled said they would be willing to pay extra for same-‐day or expedited delivery of purchases (assuming free basic delivery was already offered).

Figure 6. Shipping/Delivery Options US Internet Users Would Be Willing to Purchase

Source: PwC’s Total Retail V Survey: United States (US)

In a separate survey, conducted by Bizrate Insights, millennials aged 18–34 and Gen Xers aged 35–49 showed a stronger preference for same-‐day delivery than their elders did, and interest in same-‐day delivery increased across generational groups from 2013 to 2015.

Figure 7. Digital Buyers in North America Who Believe Same-‐Day Delivery Is Important, by Generation

Source: Bizrate Insights

61%

58%

43%

38%

37%

15%

7%

Same-‐day delivery

1–2 day delivery

Specific agreed-‐upon qmeframe for delivery

Can pick up from convenient locaqon

90-‐minute delivery for store-‐based purchase

Locker/box collecqon

Other

31%

23%

17%

10%

22%

30%

19%

13%

5%

18%

Millennials (18–34)

Gen X (35–49)

Baby Boomers (50–64)

Seniors (65+)

Total

2013 2015

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DECEMBER 22, 2015


HOLIDAY 2015 CONCLUSION

Shipping, the underappreciated link in transporting holiday purchases to consumers, is increasingly becoming a competitive advantage of retailers to draw orders. And its advantages are constantly in flux, as shipping has become free and increasingly rapid, from two days to one day to one hour. This year, the shipping industry was caught flat-‐footed by the explosion in orders, leading many to miss targets and leading some retailers to cease guaranteeing delivery by the holidays. For those consumers desiring even-‐faster shipping, they can turn to e-‐gifting or perhaps delivery by drone in the future.

Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: 852 6119 1779 China: 86 186 1420 3016 [email protected] Filippo Battaini [email protected] John Harmon, CFA [email protected] Aragorn Ho [email protected] John Mercer [email protected] Shoshana Pollack [email protected] Kiril Popov [email protected] Jing Wang [email protected] Steven Winnick [email protected] Eddie Wong [email protected]

holiday 2015 shipping trends by fbic global retail tech · consumers! should ship well! ahead of!...

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