Last-mile delivery investment will boost sales
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Increased investment by retailers in last-mile delivery is essential to uncover new revenue streams, according to a new study released by the Capgemini Research Institute. According to the report, 97 per cent of organisations believe that current last-mile delivery models are not sustainable for full-scale implementation across all locations, and that free shipping costs cannot be maintained unless delivery costs are reduced through automation.
“Today, customers are neither satisfied with the quality of delivery services, nor willing to bear the total cost of last-mile delivery,” said Tim Bridges, global sector leader, consumer products, retail and distribution at Capgemini.
“Therefore, the dilemma facing retailers is to provide last-mile delivery services that customers value, without damaging their own profitability. If done right, and their last-mile experience can win over customer satisfaction, retailers stand to gain loyalty, increased purchase value and frequency, while mitigating profitability risk through automation and optimisation of fulfillment locations,” he said.
Among its conclusions, the report stated that with warehouse and product sorting representing one-third of supply chain costs, there is a significant opportunity in automation. Recognising this opportunity, 89 per cent of organisations are investing in the mechanisation and automation of store back-rooms to expedite fulfillment and deliveries.
Speed boosts sales
Fast and effective last-mile delivery were also shown to increase customer spend and loyalty. Seventy-four per cent of satisfied customers intend to increase spend by as much as 12 per cent with retailers they frequently purchase from. The majority (82 per cent) of customers have shared positive experiences with friends and family, and just over half (53 per cent) would be willing to purchase a paid membership for a good delivery service. However, despite 55 per cent of customers expressing that offering two-hour deliveries would increase loyalty, only 19 per cent of firms currently provide this compared to 59 per cent of firms that offer a delivery timeframe of more than three days.
The report found that consumers are not satisfied with the current state of last-mile delivery with high prices (59 per cent), non-availability of same-day delivery (47 per cent), and late deliveries (45 per cent) driving delivery dissatisfaction.
“Recognising this opportunity, 89 per cent of organisations are investing in the mechanisation and automation of store back-rooms to expedite fulfillment and deliveries.”
According to the findings, 97 per cent of organisations believe that current last-mile delivery models are not sustainable for full-scale implementation across all locations. As such, they must be viewed as a key investment for this year, with only 1 per cent of customers willing to absorb the total cost incurred for last mile deliveries.
Despite low delivery costs being the top priority for half of all customers, only 30 per cent of organisations considered it a top priority for themselves.
Recommendations for retailers
The report closes with the following recommendations for last-mile delivery success:
Optimise fulfillment locations: Increasing store-based deliveries by 50 per cent could potentially lead profit margins to soar by as much as nine per cent. Dark stores – retail outposts with store-like layouts intended only to fulfil online orders – can also process high delivery volumes and are 23 per cent cheaper than conventional stores for same-day deliveries. Additionally, if 30 per cent of deliveries and returns are routed through parcel locker collection arrangements, organisations could expect an eight percent increase in profit margins.
Automate delivery options: Back-room automation could increase profits by up to 14 per cent by reducing the cost of click-and-collect orders and deliveries from store. Furthermore, automation offers a range of benefits including reduction of fulfillment errors and managing returns (which forms 26 per cent of the delivery cost).
Questions & Answers
Q.What is the primary reason retailers are finding current last-mile delivery models unsustainable?
What is the primary reason retailers are finding current last-mile delivery models unsustainable?
Current models are not sustainable for full-scale implementation across all locations, and free shipping cannot be maintained without reducing costs through automation. Customers are unwilling to bear the total cost of last-mile delivery.
Q.Which specific automation strategies are organisations investing in to improve delivery and fulfillment?
Which specific automation strategies are organisations investing in to improve delivery and fulfillment?
Eighty-nine per cent of organisations are investing in the mechanisation and automation of store back-rooms to expedite fulfillment and deliveries. This also helps reduce the cost of click-and-collect orders and managing returns.
Q.What customer delivery preferences are not currently being met by many firms?
What customer delivery preferences are not currently being met by many firms?
Fifty-five per cent of customers value two-hour deliveries, but only 19 per cent of firms offer this. Many firms instead provide a timeframe of more than three days, which contributes to customer dissatisfaction.
Q.What specific actions could retailers take to significantly increase profit margins through delivery optimisation?
What specific actions could retailers take to significantly increase profit margins through delivery optimisation?
Increasing store-based deliveries by 50 per cent could boost profit margins by nine per cent. Routing 30 per cent of deliveries and returns through parcel lockers could also increase profit margins by eight per cent.
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